RCI Banque, Renault's financing subsidiary, has entered an interest rate swap on a recent EUR400 million (USD429.42 million) offering to convert it to a synthetic floating-rate liability. Jean-Marc Saugier, group treasurer in Paris, explained that the bond has a 4.2% coupon, but after the first two years and three months, the investor is paid the harmonized index for consumer prices (HICP) euro-zone inflation level--excluding tobacco--plus 200 basis points if Euribor is above 4 1/2%. In the swap, RCI pays Euribor plus a spread and receives the coupon on the bond. The swap has the same maturity as the underlying offering.
The bond issue was a reverse enquiry from an investor, said Saugier, so the financing company entered the swap because it does not have the need for inflation-based liabilities. "The interest rate exposure would be difficult to hedge," Saugier said.
Unicredit Banca Mobiliare was the underwriter on the transaction and is also the counterparty on the swap. Saugier said RCI chose the firm because it brought the investor to RCI. The funding arm of Renault does not have a minimum credit rating requirement because it chooses counterparties based on a combination of rating and involvement in refinancing of its liabilities, Saugier explained. "We would prefer a single A rated counterparty that lends us money than a AAA rated counterparty that has no cash," he added. Andrea Laruccia, head of Unicredit's European medium-term note trading in Milan, confirmed the swap.
