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Oil & Gas Co. May Drill For Debut Swap

Nabors Industries, an oil and gas drilling company with roughly USD2 billion in annual revenue, is considering executing its first over-the-counter interest-rate swap. Dennis Smith, director of corporate development in Houston, said the Standard & Poor's 500 Index constituent is considering entering a swap on the back of a recent two-part, USD500 million bond, privately placed by Lehman Brothers. "We're looking at it, but we haven't done anything yet."

Nabors recently issued USD225 million in seven-year bonds and USD225 million in 10-year paper. The deals were priced to yield 4.875% and 5.375%, respectively. Any swap would be used to convert a portion of the fixed-rate deals into synthetic, LIBOR-based obligations. Smith explained that the company is considering entering its first interest rate swap now because it has taken on this new chunk of debt.

The company has about USD1.3 billion in zero-coupon convertibles with a 2.5% coupon, which it does not hedge because of the low coupon, and another USD300 million in fixed-rate paper that comes due in the spring of 2004. It raised the recent capital for refinancing and Smith said some investors in its convertible bonds have a put option, which he expects them to exercise next year given depressed equity markets..

Moody's Investors Service rates the drilling company Aa3 and S&P rates it A minus.


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