Houston-based Lyondell Chemical Co., a manufacturer and marketer of basic chemicals and polymers, is considering entering an interest-rate swap to convert a seven-year USD393 million fixed-rate bond it issued in late November into a synthetic floating-rate liability, according to a company official. The chemical company is looking to enter a swap in which it receives a fixed rate equal to the 9.50% coupon on the bond and pays a floating rate.
"We think there is a good chance we will get a lower rate if we do a swap. Especially with the most recent rate cut. Ideally we'd like to get something close to about 250 basis points over [U.S. 10-year] Treasuries," the official said. The 10-year Treasury was 3.76% Monday. "The 250 basis points is our ideal. We understand that the likelihood of it happening may be slim. Our feeling is that if we shoot for the lowest it will be more probable to get something in the middle," the official added. The maturity on the swap would equal the seven-year maturity on the notes.
J.P. Morgan and Salomon Smith Barney were joint bookrunners for the offering and there is a strong possibility one of the firms may be tapped to serve as a swap counterparty, the official said. Officials at the firms declined to comment.
Standard & Poor's rates the chemical company BB. Lyondell has entered interest-rate swaps in the past despite its junk bond status. The official, however, declined to detail past deals. The chemical company is using the proceeds of the bond to prepay some of its USD1 billion in outstanding loans.
