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Brunswick and Merrill Lynch executed a letter agreement
appointing Merrill Lynch as Brunswick's exclusive agent to
arrange for the sale of the 3 LIBOR notes.
On September 6, 1990, Brunswick sold the 3 LIBOR notes to
BOT for $26,601,451. Brunswick determined that it incurred a
capital loss on the sale of the LIBOR notes. First, Brunswick
computed its inside basis in the 3 LIBOR notes by multiplying
$166,666,667 ($200,000,000 (Saba's original cost basis in the
Chase PPNs) less $33,333,333 (the portion of Saba's cost basis in
the Chase PPNs used in computing Saba's gain on the sale of the
PPNs)) by 75 percent to account for the fact that Brunswick had
received 3 of the 4 LIBOR notes originally held by Saba. Under
this formula, Brunswick determined that it had an inside basis in
the LIBOR notes of $125,000,000. In the alternative, Brunswick
computed its outside basis in Saba as of September 6, 1990, as
follows:
Contributions $19,000,000
Distributive share for 3/31/90
Capital gain 12,033,334
Income 127,470
Purchase of partnership interest 92,452,227
Total basis $123,613,031
Brunswick determined that its basis in the 3 LIBOR notes was
$123,613,031--the lesser of its outside basis in Saba or its
inside basis in the 3 LIBOR notes.
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