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If petitioner entered the market and purchased its debt
obligations for less than the amount that it had borrowed,
petitioner would normally realize income equal to the difference
between the amount it borrowed and the amount it paid to purchase
its debt instruments. We think that respondent’s argument that
petitioner could have received discharge of indebtedness income
by repurchasing its debt at a discount supports our conclusion
that petitioner’s favorable financing had value.
C. Respondent’s Argument That the Value of Petitioner’s
Favorable Financing Is Limited to the Value of
Petitioner’s Income Spread
Assuming, without conceding, that favorable financing is a
valuable asset, respondent argues that the price an acquirer
would pay to purchase petitioner’s rights and obligations with
respect to its CMOs or GMCs would not exceed the present value of
petitioner’s spread income associated with those instruments. As
of January 1, 1985, respondent asserts that the present value of
the spread related to petitioner’s GMCs and CMOs equaled
approximately $11.4 million and $7.2 million, respectively.
Dr. Hakala concluded that favorable financing is not an
intangible asset; however, Dr. Hakala found that petitioner’s
income spread has value because its assets and liabilities are
closely matched.15 According to Dr. Hakala, when previously
15 Dr. Hakala indicates that the CMOs and GMCs are exactly
matched.
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