Henkel, a multi-national group of manufacturing companies that specializes in cosmetics, chemicals, hygiene and technology, has entered an interest rate swap to convert a recent fixed-rate EUR1 billion bond (USD1.17 billion) offering into a synthetic floating-rate liability. Sylvester Heyn, corporate risk manager in Düsseldorf, Germany, said the company decided to convert the offering into floating-rate debt to reduce risk because floating-rate liabilities are a better fit with its cash profile. He explained that he looks at the profile of all of Henkel's liabilities, including its pension fund liabilities, when determining whether to convert an offering into floating-rate debt.
Heyn noted, however, that the company has flexibility with the swap and that if market conditions change, such as a spike in interest rates, it could unwind the swap with one of the counterparties to convert the debt back into a fixed-rate liability. In the swap, Henkel pays Euribor plus a spread and receives the 4.25% coupon on the bond. The swap matches the 10-year maturity of the bond. Heyn said there are five counterparties on the swap, but would not identify them, saying only that some of the lead managers on the bond offering were in the group. The lead managers included Citigroup, Deutsche Bank, Dresdner Kleinwort Wasserstein and HSBC.
