- 51 -
The Fuji and Norinchukin hedge swaps were designed to allow
the banks to transform their liabilities under the LIBOR notes to
an amortizing liability at an interest rate below LIBOR.
Consequently, the Fuji and Norinchukin hedge swaps effectively
converted the transactions, from the banks' perspective, to
synthetic funding below the banks' funding rates. Further, the
banks' payments under the hedge swaps were much less volatile
than the payments required to be made under the LIBOR notes.
B. Sodbury-ABN-Merrill Lynch Swaps
Sodbury entered into interest rate swaps with ABN and ABN
entered into mirror swaps with Merrill Lynch to reduce Sodbury's
and ABN's interest rate risk associated with the 4 LIBOR notes
held by Saba.
C. Bank of Tokyo Swaps
Effective September 6, 1990, Merrill Lynch and BOT executed
a swap in connection with BOT's purchase of the 3 LIBOR notes
from Brunswick. The swap, which was designed to replicate the
economic effect of investing in an amortizing loan that paid a
margin over LIBOR, effectively converted the purchase of the
LIBOR notes, from BOT's perspective, to a synthetic amortizing
asset at a rate above BOT's normal financing rate.
D. Banque Francaise du Commerce Exterieur Swaps
Effective January 2, 1991, Merrill Lynch and BFCE executed a
swap in connection with BOT's assignment of the Norinchukin LIBOR
Page: Previous 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 NextLast modified: May 25, 2011