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the interest rates extant in 1984 when Mercer County issued the
1984 tax-exempt bonds, and not on interest rates for tax-exempt
bonds issued in 1991. Specifically, on or about December 12,
1991, petitioner initiated a study (refinancing study) regarding
the benefits that it would derive in the event of a modification
of the 1985 sale and leaseback which would require calculation of
the minimum annual basic rent payable by petitioner on the basis
of the annual debt service of newly issued tax-exempt bonds
bearing the interest rate for such bonds extant at that time.
By January 1992, when petitioner’s board of directors met to
consider the results of the refinancing study, interest rates on
newly issued tax-exempt bonds had declined dramatically to
approximately 6.5 percent from the 10.5 percent rate extant in
1984 when Mercer County issued the 1984 tax-exempt bonds.
Petitioner determined from the refinancing study that if the 1985
sale and leaseback were modified to require petitioner to pay
minimum annual basic rent calculated by reference to tax-exempt
bonds issued in early 1992, its minimum annual basic rent obliga-
tion would be decreased by approximately $4.2 million. Conse-
quently, petitioner concluded that it would attempt to effect a
modification of the 1985 sale and leaseback in order to achieve
such a substantial reduction in its minimum annual basic rent
obligation.
There were three significant hurdles that petitioner faced
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