Long Island Power Authority is looking to enter an interest-rate swap to convert a $100 million fixed-rate bond it issued last week into a synthetic floater in order to better balance its debt portfolio and cuts its cost of funds. Lehman Brothers, which underwrote the bond deal, also will act as swap counterparty.
Diane Taylor, cfo at the Union Dale, N.Y.-based utility, said LIPA issued a 5.5% fixed-coupon revenue bond because it was able to achieve better pricing than in the floating-rate note market. The power company hopes to turn the debt issue into a synthetic floater within the next month or so. She believes the transaction could shave some 150 basis points off LIPA's cost of funding if swap spreads move in LIPA's favor. She adds the swap also will better balance LIPA's roughly $6.2 billion debt portfolio. Some 70% of the book comprises fixed-rate debt.
LIPA issued the $100 million bond as part of a three-tranche $1.5 billion offering in the municipal bond market. Taylor says the company also sold $700 million of auction-rate notes through Lehman, Salomon Smith Barney, Goldman Sachs and PaineWebber and $700 million of variable-rate notes via Bear Stearns, J.P. Morgan and PaineWebber. All three deals mature in 2033 and will be used to refinance a Westdeutsche Landesbank-arranged debt facility that matures May 28.
