Exhibit I: B.F.

Goodrich-Rabobank Interest Rate Swap

($ in Millions)
Step 1: Determine Comparative Advantage:
Option A: BF Goodrich Fixed and Rabobank Floating

Option B: BF Goodrich Floating and Rabobank Fixed

BF Goodrich Fixed
12.50%
Rabobank Floating
L + 0.25%
Total Cost
L + 12.75%
*BF Goodrich should borrow floating and Rabobank should borrow fixed

BF Goodrich Floating
Rabobank Fixed (Semi-Annual)
Total Cost

L + 0.5%
10.7%
L + 11.2%

Total Savings to be Shared = L + 12.75% - L - 11.2%

Total Savings to be Shared =
1.55%
Step 2: Determine Annual Cost of $125K Fee (on Semi-Annual Yield Basis)
Fee Calculation:
Time 0
49.875
1
-5.500
2
-5.500
3
-5.500
4
-5.500
5
-5.500
6
-5.500
7
-5.500
8
-55.500
Cost (Annual Yield)
11.049%
Cost (Semi-Annual Yield)
10.759%
Less 10.7% Quoted Cost
-10.700%
Cost of Fee
0.059%
Step 3: Determine Benefit of Swap to Each Party
New Debt Issued:
Terms: BF Goodrich
Credit Rating:
BBB
Amount
$50
Maturity:
8 Yrs
Coupons:
Semi-annual
Coupon Rate:
Annual rate = 3 mo. Eurodollar LIBOR + 0.5%
Alt Cost of 8 Yr Fixed Rate Debt: 12-12.5%
L-x
<<< <<
Goodrich

(1+r/2)^2 = (1+x)
solve for r

Terms: Rabobank
Credit Rating:
AAA
Amount
$50
Maturity:
8 Yrs
Coupons:
Annual
Coupon Rate:
Fixed at 11%, semiannual equivalent YTM = 10.7%
Alt Cost of 8 Yr Float Rate Debt: L + 0.25% - L + 0.375%

<

L-x
<

<

Morgan
>>>>>>>>>>>
10.7+f+0.06

|
|
| L+0.5 to Bondholders

Rabobank
>>>>>>>>>>>>>>
10.70%

Outside Fixed Cost: 12.5%

|
|
| 10.7% Fixed to Bondholders
Outside Floating Cost: L +0.25%

Interest Rate Swap:

BF Goodrich:
Pay L+0.5% coupon payments semiannually on domestic debt
Pay Morgan $5.5M annually, $125K initial fee and an annual fee of "f"
Receive semiannual payments of L-x to cover its coupon payment obligations

Rabobank:
Pay 11% coupon payments annually on Eurobond debt (10.7% semiannual equivalent YTM)
Pay Morgan semiannual payments of L - x
Receive $5.5M annually to cover its coupon payment obligations

Cost to BF Goodrich:
CF to Bondholders:
CF to Morgan:
CF from Morgan:

Cost to Rabobank:
CF to Bondholders:
CF to Morgan:
CF from Morgan:

-(L + 0.5%)
-10.7% - f - 0.06%
+(L-x)

-10.7%
-(L-x)
+10.7%

CF to Morgan:
CF from BF:
CF from Rabo:

10.7% + f + 0.06% - (L-x)

(L-x) - 10.7%

Total Cost = -(L+0.5%) - 10.7% - f - 0.06% + (L-x)

Total Cost = -10.7% - (L - x) + 10.7%

Total to Morgan = 0.06% + f

If Fixed Cost = 12.5%:

Then: -(L+0.5%) - 10.7% - f - 0.06% + (L-x) < -12.5%
-L - 0.5% - 10.7% - f - 0.06% + L - x < -12.5%
-0.5% - 10.7% - f - 0.06% - x < -12.5%
-11.26% - f - x <-12.5%
11.26% + f + x < 12.5%

If Floating Rate = L + 0.25%:

Then: -10.7% - (L-x) + 10.7% < -(L + 0.25%)
-(L-x) < -(L+0.25%)
x > -0.25%

Annual fee for similar swaps = 8 - 37.5 bp

or 0.08-.375%.
If f = .375%
then, total fees to Morgan = .375% + 0.06% = 0.435%

If Fixed Cost = 12.5%

Then: f+x < 1.24%

If Float Cost = L + 0.25%

Then: x > -0.25%
If Float Cost = L + 0.375%
Then: x > -0.375%

If Fixed Cost = 12%

Then: f+x < 0.74%
Suppose:
f=
x=

0.38%
0.25%

Savings to BF Goodrich:
Savings to Rabobank:
Profit to Morgan:
Total Savings

0.61%
0.50%
0.43%
1.55%