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note to BFCE. 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 Note, from BFCE's perspective, to a synthetic amortizing
asset at a rate above LIBOR.
E. Brunswick Swaps
On April 5, 1990, Brunswick and Merrill Lynch entered into
an Interest Rate and Currency Exchange Agreement to govern
anticipated swap transactions between them. On July 16, 1990,
concurrent with Brunswick's purchase of 50 percent of Sodbury's
interest in Saba, Brunswick and Merrill Lynch entered into a swap
agreement. Brunswick used the swap to hedge a substantial
percentage of its interest in the LIBOR notes held by Saba.
On August 20, 1990, concurrent with the Saba's distribution
of 3 LIBOR notes to Brunswick, Brunswick and Merrill Lynch
entered into a second swap agreement. Brunswick used the swap to
hedge a substantial percentage of its interest in the LIBOR
notes.
On September 6, 1990, Brunswick and Merrill Lynch partially
terminated the July 16, 1990, swap in connection with Brunswick's
sale of the 3 LIBOR notes to BOT. The July 16, 1990, swap was
completely terminated on July 2, 1991, following SBC's sale of
the remaining Norinchukin LIBOR note. On September 6, 1990,
Brunswick and Merrill Lynch partially terminated the August 20,
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