Dixons Group, a U.K. consumer electronics retailer, has entered a cross-currency interest rate swap to convert a recent GBP300 million (USD477.12 million) bond offering into a synthetic euro-denominated floating-rate liability and plans next to enter a basket of additional interest rate swaps to hedge the floating-rate exposure. Giles Newell, group treasurer in Hemel Hempstead, U.K., said doing the swap in two steps allowed for ease of execution since converting fixed sterling into floating-rate euros is a simple transaction.
The additional swaps collectively will have a notional value equal to the size of the bond offering, said Matthew Hurn, European treasurer. He added that the company will be looking generally to enter a structured transaction consisting of interest rate caps and collars. Newell said this swap would allow the company to reach what it considers to be an ideal fixed-to-floating ratio. He would not elaborate.
The company issued the bond in sterling due to investor demand, but needed to convert the proceeds into euros because they are partially funding its recent acquisition of Italian electronics retailer UniEuro, Hurn explained. In the swap, Dixons is receiving the 6.125% coupon on the bond and paying a Euribor-based floating rate, which Hurn would not disclose.
HSBC, Barclays, Royal Bank of Scotland, Citibank and Westdeutsche Landesbank were the counterparties on the swap. Newell explained that a 10-year swap uses a large portion of a credit line with a bank so it needed to enter into the swap with a large group of counterparties. In addition, the company wanted to use its five relationship banks, he said. Barclays and HSBC were the lead bookrunners on the bond offering and RBS and Citibank were the co-managers. Hurn noted that the company plans to use the same counterparties for the pending swap.