Fleming Companies, the U.S.' largest distributor of packaged foods, is planning to enter an interest-rate swap to convert a fixed-rate obligation into a floating-rate liability. The company issued an eight-year USD200 million bond last month and is now seeking to enter a swap to convert USD50 million of it to floating-rate, said Matt Hildreth, senior v.p. of finance in Lewisville, Texas. He said that would achieve the company's optimal interest-rate mix of roughly 60-65% in fixed-rate. "That's our sweet spot," he said.
In any swap, Fleming would look to receive the 9.25% coupon on the eight-year bond and pay a spread over six-month LIBOR. Hildreth said he expects to conduct the swap with the company's group of core bankers, including JPMorgan and Wachovia Securities. "They are the most aggressive and do the best executions," he noted. Officials from the banks declined to comment.
Although Fleming is keen to maintain interest-rate risk management, Hildreth said the company tends to enter swaps only after it has issued fixed-rate bond deals. "The idea of doing swaps to try and make money is not what we do, we use them to mitigate risk," he said.
Moody's Investors Service rates Fleming Ba3 and Standard & Poor's rates it BB.