Energy supplier Centrica has entered an interest-rate swap to convert half a recent fixed-rate bond offering to a floating-rate liability. Tony Kendall, group treasurer in Windsor, U.K., said the company entered a fixed-to-floating swap on the back of its recent GBP100 million (USD145 million) bond sale. The owner of British Gas converted GBP50 million into a floating-rate liability and will retain the remaining GBP50 million in fixed-rate exposure. "Our policy is to have 50/50 in fixed and floating," he said, adding the company issued the four-year deal in fixed because investors prefer fixed-rate paper.
In the four-year swap, Centrica receives the 5.375% coupon on the bond and pays a LIBOR-based rate. Kendall said a company of Centrica's credit rating would normally expect to pay around LIBOR plus 20 basis points for a four-year swap, though he declined to specify what Centrica's costs are except to say they are lower than that. Moody's Investors Service rates Centrica A2 and Standard & Poor's rates it A. He declined to name the counterparty for the swap.
Kendall said the company did not enter the swap as part of an all-in package and instead waited about a week after the deal was priced, via HSBC, to enter a swap on terms it felt were more favorable than those at the time of the transaction. "We were quite happy with the fixed-rate at the time, but the market changed and we saw an opportunity to swap to floating at an attractive rate," Kendall said, declining further comment.
Centrica raised the money as part of its general funding purposes and will keep the proceeds in sterling. The company has not yet issued in a foreign currency, though Kendall said it would look to enter a cross-currency interest-rate swap if it does tap, for example, the euro market. However it does not foresee issuing in euros as there is enough demand for its sterling paper, according to Kendall.
