Portman Building Society, a U.K. mortgage lender, has entered an interest rate swap to convert part of a GBP125 million (USD208 million) issue of permanent interest-bearing shares into a floating-rate liability. David Steunell, group treasurer in Bournemouth, said it entered the swap because its liabilities are mostly floating rate. Steunell declined to reveal how much of the issue had been converted.
In the swap, the thrift pays floating and receives fixed. The shares pay 6.25% until Oct. 22, 2024 and then step up to pay 7.25% afterward. Steunell said it would be reasonable to assume that it received these rates in the swap, but declined to elaborate.
The shares have an embedded Bermudan call option that allows Portman to call the shares at par when they step up to pay 7.25%. If the thrift does not call the shares then the coupon is reset to 258 basis points over the relevant gilt. The thrift can then call the shares every five years.
Barclays Capital was the sole manager of the share issue, but Steunell declined to name the swap counterparty.
Under U.K. legislation, building societies that are owned by their members and are not allowed to issue ordinary shares but can issue permanent interest bearing shares that behave like preference shares. Portman issued the shares to grow its balance sheet.
