Husky Energy, Canada's second-largest oil and gas company in terms of production, has entered into three interest-rate swaps to convert a fixed-rate obligation into synthetic floating-rate liabilities. Mike D'Aguiar, treasurer in Calgary, Alberta, said the company entered three separate USD50 million swaps in which it receives the 6.25% coupon it owes on a recent bond and pays an average of six-month LIBOR plus 88 basis points. The swaps match the 10-year duration of a USD400 million bond Husky issued earlier this month.
D'Aguiar said Husky prefers to keep liabilities in floating because they act as a natural hedge against continuing low interest rates, which he said could lead to a more permanent situation. "One scenario is the U.S. economy has a double dip and goes into a period of stagnant growth with low inflation like Japan, so swapping into floating hedges against that downside situation," he said. The company may also look to enter more fixed-to-floating swaps for the entire amount of the deal although he said terms are less attractive than earlier in the month because of the price of fixed-rate Treasuries.
Husky entered the swaps with three different counterparties, whom D'Aguiar declined to name, to get the best pricing in the liquid swap market and because swap dealers often have restricted credit lines. He said it would be unlikely to get as favorable terms if it entered a USD400 million swap with one bank. "We do like to deal with a broad range of banks and spread the execution over a number of dates," he said.
