Legal & General Group is planning to use interest-rate swaps to hedge upcoming five-year bond issues. Although the company has no immediate plans to issue five-year notes, it floats them on a frequent ongoing basis, said John Whorwood, treasurer in London. He said the insurer's issuance would depend on its mortgage-lending activity, but should total approximately GBP200 million (USD287 million) this year. The firm typically only enters swaps on its five-year bonds because these fund its mortgage-lending business.
Whorwood explained the insurance group mainly enters swaps on reverse enquiry bonds. For example, if investors were to ask for a five-year yen-denominated bond, Legal & General would be willing to issue it if it could convert the fixed rate for an attractive floating rate and enter a yen for sterling swap. Its target funding rate is close to LIBOR, he said. Whorwood declined to name the counterparties Legal & General uses when entering swaps, but said it typically deals with those rated AA or AAA. "We also like to work with those [counterparties] we believe have derivatives expertise and come up with ideas," he added.
Legal & General's current debt portfolio is GBP1.6 billion, made up of GBP525 million in convertible debt, GBP600 million in long-dated issuance and GBP500 million in five-year maturities.
