HBOS has entered interest rate and currency swaps to hedge the risk on a recent EUR2 billion (USD2.54 billion) bond issue. The full proceeds of the note were synthetically converted to a floating-rate matching the 2009 maturity of the bond and the firm's assets. Steve Lorimer, syndicate manager at HBOS in London, said the bank also entered a currency swap to switch the proceeds into sterling, but declined to reveal the details of the swap.
Lorimer said HBOS primarily chooses interest rate counterparties on the basis of price. In this case the counterparties in the swaps were not the bookrunners on the bond issue, he noted. ABN AMRO, Citigroup and Deutsche Bank were the bookrunners. "Our internal swaps team quotes pricing for interest rate swaps and we sometimes offer the swap to one or two outside banks," explained Lorimer.
Lorimer explained the decision to convert the currency of a bond issue depends on market conditions and the make up of the bank's foreign currency books. Lorimer declined to reveal the counterparties or rates exchanged on either swap.
