Marshall & Ilsley, a regional U.S. bank with USD29 billion in assets, has unwound interest rate swaps it entered in advance of two fixed-rate bond offerings it sold last month. Don Wilson, senior v.p. and treasurer in Milwaukee, Wis., said the bank entered several forward-starting swaps, at rates and with counterparties he declined to name, to lock in base rates in advance of a two-part USD550 million offering. The swaps were liquidated when Marshall & Ilsley issued the debt, which consisted of a five-year USD300 million piece and a 10-year USD250 million chunk.
Wilson said the bank will not enter swaps on the back of the deal and will leave the fixed-rate deals as such, because the proceeds are being used to pay for Marshall & Ilsley's pending acquisition of Mississippi Valley Bancshares and for other fixed-rate projects.
Wilson said the bank entered the swaps a couple weeks before the bond offerings because Treasury and swap rates had fallen, so the company entered forward-starting swaps. "We locked in the Treasury base rate and the swap spread, the only thing left to vary on was our credit spread," Wilson noted. He declined to reveal any average rates, because, for instance, the 10-year forward swaps on the USD250 million bond were done with four separate counterparties. By entering the swaps, he said Marshall & Ilsley was able to save itself several basis points on the cost of the USD550 million offering.
The bank often enters forward-starting swaps when it is preparing bond offerings and feels Treasury and swap rates have reached attractive levels.
