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On January 1, 1995, the refinancing of the 1984 tax-exempt
bonds was effected by the simultaneous redemption of the 1984
tax-exempt bonds and issuance of the 1995 tax-exempt bonds. The
1995 tax-exempt bonds had an interest rate of 7.2 percent, were
payable semiannually on June 30 and December 30, and matured on
June 30, 2013. Because of the 7.2-percent interest rate on the
1995 tax-exempt bonds, the annual interest payment on those bonds
was $3,720,750 less than the annual interest payment that would
have been due on the 1984 tax-exempt bonds.
During each of the years 1995 and 1996, petitioner’s aggre-
gate minimum annual basic rent obligation under the modified 1985
sale and leaseback agreements was reduced by 100 percent of the
interest savings attributable to the refinancing of the 1984 tax-
exempt bonds, i.e., by $3,720,750. After 1996 and until June 30,
2013, when the 1995 tax-exempt bonds were to mature, petitioner’s
aggregate minimum annual basic rent obligation under the modified
1985 sale and leaseback agreements was reduced by, inter alia, 80
percent of the interest savings attributable to such refinancing,
i.e., by $2,976,600.20
We have found that petitioner paid the expenditures at issue
in order to modify and enhance the 1985 sale and leaseback
agreements so that petitioner’s aggregate minimum annual basic
rent obligation under those modified agreements would be substan-
20See supra note 9.
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