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Derivatives

Norwegian Development Bank Enters Side-By-Side Swaps

Nordic Investment Bank, a multilateral financial lending institution, has entered two interest rate swaps on a recent fixed-rate USD1 billion bond offering to convert the issue into two floating rate liabilities--one denominated in euros and one in U.S. dollars. Kari Kukka, head of funding in Helsinki, said the Nordic Investment Bank sold a dollar-denominated bond because it allowed the institution to achieve a favorable funding rate, but it converted USD500 million of the proceeds into euros because it has some lending requirements in that currency. Both swaps match the five-year maturity of the bond.

In the first swap, Nordic Investment Bank pays Euribor minus a spread and receives the 3.125% coupon on the bond. In the second swap, the institution pays LIBOR minus a spread and receives the 3.125% coupon on the bond. Both swaps are for USD500 million. Kukka declined to identify the counterparties on the transactions.

The bank does not set a minimum credit rating for counterparties, but if a firm has a rating below single A, Nordic Investment Bank will often require a collateral agreement. BNP Paribas, HSBC and Morgan Stanley were the lead underwriters on the offering.

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