London-based EDF Energy is considering entering an inflation-linked interest-rate swap to peg the firm's interest rate liabilities on a pending GBP350 million (USD668 million) fixed-rate bond offering to movements in the U.K.'s retail price index (RPI).
In a recent beauty parade to select underwriters for the bond offering, Treasurer Steve Bott said he asked contestants to offer quotes both for underwriting an inflation-linked bond and a plain vanilla fixed-rate deal. He says a wider disparity in pricing now compared to when he has evaluated the two markets previously prompted him to go with a fixed-rate deal for the time being and possibly acquire an inflation hedge when pricing is more attractive.
EDF Energy, a vertically integrated utility subsidiary of Paris-based Electricité de France, prefers inflation-linked exposure when its electricity networks are borrowing money because tariffs on these regulated assets are linked to an Ofgem-set pricing formula that incorporates RPI, explained Bott.
EDF Energy Network (EPN), an electricity network arm of EDF Energy covering East Anglia, was set to tap the sterling bond market late last week with a 20-year fixed-rate bond priced around 80-85 basis points over long-dated gilts. Royal Bank of Scotland is leading the deal.