Teck Cominco, a Canadian mining and refining concern with USD1 billion in outstanding debt, is considering entering an interest rate swap to convert part or all of a fixed-rate bond it recently sold into a synthetic floating-rate liability. Larry Mackwood, treasurer in Vancouver, British Columbia, said he is monitoring the swaps market and would pull the trigger on a fixed-to-floating swap referenced to a recent USD200 million bond offering if pricing improves. "We want to do it as cheap as possible," he said, noting the company has used interest rate swaps in the past but is not an active user.
In any swap, Teck Cominco would seek to receive the 7% coupon on the 10-year bond and pay a spread over three-month LIBOR. And as an energy company, Mackwood said it is using the dollar proceeds from the bond sale to repay other existing dollar debt and will not seek to enter a cross-currency swap. Presently, he predicted Teck Cominco would have to pay in the range of three-month LIBOR plus 255 basis points. "We'd like to see a more attractive level to do a floating-rate swap," he said, declining to quantify the level. Any swap would further tilt the company's floating-rate mix, which now accounts for about 60% of its total debt. Mackwood said he does not have a specific target rate.
