Greif Bros. Corp., a maker of industrial packaging with annual revenue of roughly USD1.5 billion, is planning to enter interest-rate swaps to partially convert the fixed-rate liability from a recent bond offering into a synthetic floating-rate obligation. Rob Zimmerman, assistant treasurer in Delaware, Ohio, said the company did not enter any swaps as part of the USD250 million deal, which was priced late last month, or immediately after it because it hopes to get a more attractive rate by waiting. "We will be swapping it out on a scheduled basis, because the market is so [bad] right now we would be paying a high spread over LIBOR," he said.
Zimmerman estimated the company would pay 360-370 basis points over six-month LIBOR if it were to enter a swap now. Instead, it will enter swaps on a staggered basis, probably with notional values around USD50 million, as a way of dollar-cost averaging. He expects to enter swaps as the Treasury curve flattens in the months ahead, which he predicted would lead to a savings of 20-30bps on the swaps. In any swap, the company would look to pay a spread over six-month LIBOR and receive the 8.875% coupon on the bond, for the 10-year maturity. Greif will likely use swaps to convert 60-70% of the deal to a synthetic floater, to help achieve its debt profile "sweetspot" of having 40-50% in fixed-rate. The company now has USD670 million in total debt.
As for counterparties, Zimmerman said Greif will shop around for the best deal and will not limit its dealings to Salomon Smith Barney, the bond deal's underwriter.
