United Auto Group (UAG), an auto dealer in Detroit with 123 franchises in the U.S. and 55 internationally, is considering entering an interest-rate swap on the back of a recent USD300 million bond offering or unwinding several existing interest-rate swaps to get the desired fixed to floating-rate debt ratio, said James Davidson, executive v.p. of finance.
The company issued USD300 million in 10-year high-yield bonds, with a 9% coupon, last month. Davidson said the company would look to enter a swap in which it receives a fixed rate and pays a floating rate with the same maturity as the bond issue. "Right now we're taking a look at the offering and our balance sheet. We may swap the notes or unwind some past swaps to get our balance sheet in shape," Davidson added. Following the bond offering, UAG's debt portfolio is about 75% fixed and 25% floating. "We haven't decided how we would look to change the ratio, either through a swap or unwinding past swaps," said Davidson, who added that a decision would be made in the next several weeks. It is currently looking at the composition of its assets such as floating-rate loans on cars it sells to see if these can act as hedge for its some of its debt.
Davidson declined to name the counterparty for UAG's swap deals or detail the deals that the company would look to unwind. UAG chose Banc of America Securities as the lead firm on its debt offering. UAG deals with counterparties with ratings no lower than AA. The company has about USD1.1 billion in total debt.
