Taiwan's China Airlines has entered a U.S. dollar-denominated interest-rate swap to hedge its USD1.3 billion fixed-rate loan portfolio. Yang Yen, an official in the financial department in Taipei, said the company entered a three-year USD13 million interest-rate swap this month to reverse a swap it put on two years ago. Yen declined to detail the average interest rate it pays on the loans.
In the recent swap the airline pays U.S. dollar LIBOR and receives fixed at 5.1%. Roger Han, general manager of the finance and treasury department, said it entered the trade to reverse a five-year swap it put on two-years ago in which it paid fixed at 5.5% and received LIBOR.
With floating rates around 3.5% in September it had been locked into a position with a 200 basis point loss. Han said it was much cheaper to unwind the swap than to sell back the first swap and recognize the loss on its books, resulting in a 160 bps saving.
Yang declined to name the counterparty but said it was one of the international houses. Counterparties are chosen on the basis of price, he added.