Northern Rock, a lending and savings bank, has used an interest-rate swap to convert its recent GBP200 million offering into floating-rate debt. Phil Horner, head of derivatives in Newcastle-upon-Tyne, said the company typically converts its fixed-rate exposure into floating-rate. In the swap, Northern Rock receives the coupon on the bond offering, which is 7.053%, and pays a floating rate of LIBOR plus a spread, which Horner would not disclose.
The swap has a 25 year maturity, Horner said. The bond is callable after 25 years and resets to a floating rate of six-month LIBOR plus 183.5 basis points after that time. Horner would not disclose the counterparty to the transaction. It chose the counterparty based on its expertise in gilts, Horner said. He added that Northern Rock would use interest-rate swaps in the future if it has to raise capital, but he declined to comment on the bank's future funding needs.
