Asbury Automotive Group, the fifth-largest auto retailer in the U.S., has unwound three swaps with Goldman Sachs as part of its new interest-rate risk management program, said Jeffrey Hilsgen, treasurer at Asbury in Stamford, Conn. Eric Jordan, the company's banker at Goldman Sachs in New York, declined comment.
The auto retailer entered into the three swaps, each a two-year USD100 million swap, last autumn to convert USD300 million of floating-rate debt into a fixed-rate obligation of just under 3%, Hilsgen added. Previously, the company received board approval to hedge its rate exposure late last year and entered the swaps following the approval.
The swaps with Goldman were unwound earlier this month following a separate USD250 million Rule 144a bond offering Asbury sold late last month. That deal, a 10-year fixed-rate transaction in which Asbury will pay a 9% coupon, was used to pay down debt and will be kept fixed. However, Hilsgen said the company currently strives to have 40-75% of its debt, excluding loans to dealerships, in fixed-rate obligations, and the new deal raised the company's proportion of fixed-rate debt. "When we did the [recent] deal, we thought it would be best given market conditions to unwind the swaps," Hilsgen said.
The fixed-rate deal will be used to repay an outstanding bank loan. Asbury now has USD500 million in non-dealership debt, which is evenly split between fixed- and floating-rate. Hilsgen said it entered the swaps with Goldman, which also led the bond deal and the company's recent initial public offering, because "we felt they had exceptional derivatives capabilities and execution ability." As a result of the unwinding the retailer has no over-the-counter derivatives transactions in place.
