Eaton Corp., an industrial manufacturer and a member of the Standard & Poor's 500 Index, has entered an interest-rate swap with Salomon Smith Barney as part of a recent bond sale. Premchand Kanneganti, manager of corporate finance and capital markets at Eaton in Cleveland, said it entered the swap to turn part of the fixed-rate offering into a floating-rate liability.
In the swap, Eaton receives the 5.75% coupon on the bond and pays a spread of less than 60 basis points over six-month LIBOR for the bond's 10-year duration, Kanneganti said, declining to be more specific. The company entered the swap to achieve its target mix of having 50-70% of its USD2.2 billion in outstanding debt floating. "We have a mandate to keep within 50-70% of total liabilities in floating and as part of an overall agreement we swapped a significant piece of the deal into floating, because it was used to pay down [floating-rate commercial paper]," he said. Kanneganti declined to say how much of the USD300 million deal was converted to floating. He added Eaton uses the swaps market routinely to achieve its target mix. Salomon Smith Barney is the swap counterparty and was also the lead bookrunner. Ashuni Fodar, v.p. in derivatives at Salomon in Chicago, did not return calls.
Eaton does not have concentrated credit risk and therefore does not use credit derivatives nor does it have any plans to do so. It uses foreign exchange derivatives to hedge itself as a global industrial manufacturer.
