Council of Europe Development Bank has entered a cross-currency interest-rate swap with Royal Bank of Canada as part of a recent USD500 million bond offering. The swap converts the proceeds from the fixed-rate dollar-denominated deal into floating-rate euro-denominated liabilities. "That is our policy for risk management, we normally swap them into euros and into floating," said Arturo Seco, treasury manager in Paris.
In the 10-year swap, which matches the maturity of the bond, CEB pays a floating three-month Euribor-based rate that Seco declined to disclose, and receives the 5.75% coupon on the bond. The exchange rate on the swap is USD0.89. The swap was executed as part of an all-in package with RBC, which managed the bond offering. An RBC official confirmed the trade.
Seco said CEB chose to issue in fixed dollars because of investor demand but prefers floating-rate liabilities and, as a European development bank, euros. Investors flush with cash at the start of the year also made timing right for the deal, Seco added. "We had a nice opportunity to fulfill part of our program so we didn't want to wait," he said. Seco noted CEB is open to suggestions from banks regarding the rest of its issuance program, which he said will continue to hit the 10-year sector, but declined to disclose further details. "We consider every single deal that is proposed to us, fixed or floating, that's what we have derivatives for," he said.
CEB chooses counterparties on a variety of factors with cost being the most significant, according to Seco. "We are in day-to-day contact with all the major banks," he noted.
The development bank is based in Strasbourg and counts 43 European countries as members, including all 15 European Union states. It has EUR11 billion euros in outstanding debt.
