Imperial Tobacco Group has entered into interest-rate swaps to convert three recent bond offerings in synthetic floating rate debt. The U.K. tobacco company came to market two weeks ago with a EUR1.5 billion five-year bond, a EUR750 million three-year sale and a GBP350 million 10-year offering. In addition, it entered a currency swap in which it converted the sterling-denominated bond into a synthetic euro-denominated instrument, according to John Jones, group treasurer in Bristol.
In the interest-rate swaps the company pays Euribor plus a spread, Jones said, declining to be more specific.
Since Jones manages a portfolio of fixed-rate debt, however, he will eventually enter swaps to convert the floating-rate debt back into fixed.
Investor demand spurred the company to issue the 10-year bonds denominated in sterling. The company exchanged proceeds from the bonds into euros at a spot price of EUR1.58, Jones said. Proceeds are being used to partially refinance bank debt taken on to buy Reemtsma, a German tobacco group, and therefore proceeds needed to be denominated in euros.
The counterparties for the two swaps were the lead managers and some other top banks in the syndicate for Imperial Tobacco's credit facility, which was used for funding the purchase of Reemtsma. They were JPMorgan, ABN AMRO, Deutsche Bank, Morgan Stanley, Royal Bank of Scotland, BNP Paribas, Commerzbank, Bayerische Landesbank, WestLB, Citibank and HSBC.
The company has EUR3.8 billion in outstanding debt and will not be accessing the public markets for the remainder of the calendar year. It will, however, raise approximately EUR500 million via private placements and plans to use interest-rate or foreign exchange swaps on those issues.
