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Derivatives

Spanish Utility Converts MTN

Iberdrola International has entered an interest rate swap on a recent EUR100 million (USD107 million) medium-term note offering in order to achieve its target funding rate. The Spanish utility attracted French investors to the deal by offering the debt with a floating-rate coupon pegged to EONIA--the Euro Overnight Index Average. In the swap, Iberdrola is paying a Euribor-based rate and receiving EONIA plus 30 basis points, according to Pablo Llado Figuerola Ferreti, director of capital markets at Crédit Agricole Indosuez in Madrid, the swap counterparty on the transaction. Luis Carlos Martínez, communications manager at Iberdrola in Madrid, declined comment.

Tarik Senhaji, medium-term note manager at sole lead underwriter Crédit Agricole in London, said the two-year deal was priced against EONIA because money managers at French banks typically find this variable rate the most suitable exposure for their short-term cash holdings. The note was sold exclusively to French banks.

Short-dated government debt is typically the investment of choice for French banks, but declining interest rates have left these Gallic investors hungry for extra yield that highly rated corporate bonds offer, explained Senhaji. EONIA--a weighted average of all overnight unsecured lending transactions undertaken in the European interbank market--stood at 2.54% last Wednesday.

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