- 34 -34
distribution of the LIBOR notes would result in a corresponding
decrease in AlliedSignal's capital account).
2. Loss on LIBOR Notes
With respect to the LIBOR notes, the only ASA investment
with any significant potential to fluctuate in value, ABN
intended from the outset, and did, fully hedge its risk. A
decline in interest rates, between the LIBOR notes acquisition
date and AlliedSignal's August 2 purchase, resulted in a
$6,342,068 decline in the LIBOR notes' value. Consequently,
AlliedSignal paid $3,134,884 less to acquire Barber's and
Dominguito's partnership interests than it would have paid if
interest rates had remained constant. This "loss", however, was
offset by ABN's swap income. As Mr. den Baas testified, "as soon
as the hedge was in place, we didn't care anymore about the
principal risk of the LIBOR notes". Moreover, when asked by the
Court about ABN's upside potential relating to the LIBOR notes,
Mr. den Baas explained that "we certainly took care that it would
never happen", because any increase in the value of the LIBOR
notes would be offset by losses from ABN's swap transactions.
Petitioner contends that in determining whether ABN bore any
risk of loss relating to the LIBOR notes, the Court should not
consider swap transactions outside the partnership. This
contention, however, is inconsistent with petitioner's assertion
that AlliedSignal's swaps were part of an "integrated investment
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011