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January 26, 1990, Zelisko prepared a memorandum, addressed to
Erwin and McManaman, summarizing the Merrill Lynch partnership
proposal in pertinent part as follows:
Set forth below is a bullet point summary of a
transaction proposed by Merrill Lynch to Brunswick
Corporation (BC) on December 8, 1989 to generate
sufficient capital losses to offset the capital gain
which will be generated on the sale of the Nireco
shares. The specific dollar amounts can be adjusted to
increase or decrease the capital loss required.
Step 1:
BC and an unrelated foreign partner (FP) would form a
Partnership no later than March 1, 1990 with BC
contributing $20 million in cash and the FP
contributing $180 million in cash. The Partnership
would have a fiscal year-end of March 31st since that
would be the year-end of the FP, the majority Partner.
Step 2:
Partnership buys a private placement note for $200
million with the cash in the Partnership and holds the
note for one month.
Step 3:
Before March 31, 1990, the Partnership would sell the
$200 million private placement note for $160 million in
cash and five-year contingent note with an assumed fair
market value (fmv) of $40 million. Under this
contingent note, payments would be made to the
Partnership over a five-year period equal to LIBOR[1]
times a fixed notional principal. The details
concerning the terms of this note require further
discussion by the Treasury Department with Merrill
Lynch.
1 LIBOR is an acronym for London Interbank Offering Rate
which is the primary fixed income index reference rate used in
European financial markets.
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