The Delaware River Joint Toll Bridge Commission plans to enter its first swap to lock in low interest rates on the bulk of a USD200 million floating-rate bond issue planned for next year. The maturity of the bond has not yet been determined, but will most likely be between 20 and 30 years.
The fixed-for-floating forward-starting swap will cover around USD150 million and will allow the public body, which maintains 20 bridges in New Jersey and Pennsylvania, to pay a fixed rate, said Frank McCartney, the executive director in Morrisville, Pa. He explained the forward-starting swap will enable the commission to lock-in current fixed rates, in anticipation of issuing the bonds next year. The commission will not need the bond proceeds until late next year, so it does not make sense to issue the debt now and incur the interest costs, he added.
McCartney declined to speculate what rates it is aiming to pay in the swap. The commission is talking to potential counterparties and has created a shortlist, from which it will make its choice based on credit rating and prices offered.
The commission has a 10-year capital program of USD640 million, which it's using in three tranches. A swap was not written on the first tranche, which entailed USD80 million in refinancing. The 2006 bond issue is the second tranche and the commission is seeking a forward-starting swap arrangement because rates are at historic lows and it wants to hedge against interest rate rises. The third tranche will be used in 2008 and McCartney said a fixed-for-floating swap may be entered into then, depending on the success of its first deal as well as market conditions at the time.
