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IV. Saba Transactions
A. Purchase of Private Placement Floating Rate Notes
Merrill Lynch prearranged for Chase Manhattan Bank (Chase)
to sell private placement floating rate notes (Chase PPNs) to
Saba. On February 26, 1990, Merrill Lynch transmitted to Chase a
Summary of Terms for the PPNs. On February 28, 1990, the same
day that the Saba partners made their capital contributions to
the partnership, Saba paid Chase $200 million for one newly-
issued 5-year PPN in the principal amount of $200 million. On
March 19, 1990, Chase reissued the $200 million PPN as four $50
million 5-year PPNs. Other than the principal amounts, the 4
PPNs had the exact same terms as the original $200,000,000 PPN.
In particular, the Chase PPNs were due on February 15, 1995, and
paid interest at the 1-month commercial paper rate plus nine
basis points (360-day year) converted to a money market yield for
the actual number of days in the coupon period. The rate on the
PPNs was favorable to Chase because it was slightly less than
Chase's alternative sources of funding. Interest on the Chase
PPNs was due and payable monthly on the third Wednesday of each
month commencing on March 21, 1990. The Chase PPNs included a
European-style put option exercisable by the holder on April 17,
1991, at par plus accrued interest.
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