Fleming Companies, the largest distributor of packaged foods in the U.S., is planning to become a regular end user of foreign exchange derivatives to hedge exposure to the Canadian dollar, according to Matt Hildreth, senior v.p. of finance in Lewisville, Texas. The company has in the past only used fx derivatives sporadically--twice in the last five years--but is now gearing up to increase its use of fx options following last month's acquisition of Core-Mark International. The packaged goods distributor has four of its 19 distribution centers in Canada. Hildreth estimated Fleming will enter options on a monthly basis, typically USD20-25 million (notional) per month, to hedge against movements between the greenback and its northern neighbor. He was unable to quantify the revenue Core-Mark generates in Canada.
The options will be executed under the Fleming name and the company will shift the options business to its own bankers. Core-Mark has previously been responsible for its own hedging. It will select counterparties from among its core group of banks that were involved in the acquisition and its financing, including JPMorgan, Wachovia Securities and Deutsche Bank, Hildreth said. He added, "the people that support us with their balance sheet will get a shot at this business first." A Deutsche Bank official said the bank strives to be a one-stop shop and is open to doing fx business with the company. Officials from the other two potential counterparties did not return calls.
Fleming supplies packaged foodstuffs to nearly 50,000 locations in the U.S. Moody's Investors Service rates it Ba3 and Standard & Poor's rates it BB.
