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Derivatives

Service Provider May Enter I-Rate Swap

ARAMARK Corp. a service provider that generates about USD8.5 billion in annual revenue by offering services including cafeteria food and school uniforms, is considering entering an interest rate swap to lower the fixed-rate proportion of its debt portfolio. The company may enter a swap to convert a USD300 million bond it sold this summer into a floating-rate liability, said John Benjamin, assistant treasurer in Philadelphia. He said ARAMARK has not entered a swap because rates have moved against it since the six-year deal was priced in August. "We're still thinking about it," he said. The company has used interest rate swaps before.

In any swap, ARAMARK would seek to receive the 6.375% coupon on the bond and pay a spread over six-month LIBOR. Currently, Benjamin said the company would pay roughly six month LIBOR plus 225-250 basis points, and the company will probably wait until spreads narrow. "We'd like to have a one in front of it, around 195bps," he said.

Any swap would bring floating and fixed-rate to even levels in ARAMARK's debt portfolio. Fixed-rate currently accounts for 60% of the company's USD2 billion in debt, and Benjamin said ARAMARK generally prefers to have a fixed-to-floating mix of between 70% and 30%. Another option would be to take off one of the outstanding fixed-to-floating swaps ARAMARK has previously entered that is in the money and enter a new swap at the current rates, he said. Benjamin declined further comment. Salomon Smith Barney underwrote the August bond sale.

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