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Utility Coop Enters Swaps

National Rural Utilities Cooperative Finance, a financial cooperative with more than USD20 billion in collective assets, has entered interest rate swaps on the back of a USD1.25 billion bond offering it sold recently. John Suter, assistant treasurer in Herndon, Va., said the cooperative raised the cash through a seven-year fixed-rate offering and entered three separate swaps to convert the liability into a synthetic floater and maintain 40% of its portfolio in floating-rate.

The bond was sold to replace maturing floating-rate commercial paper and so the cooperative entered swaps to replace the floater with a similar liability. Suter said CFC has traditionally relied on the CP market for funding, but with banks being averse to taking on credit risk, the CP market dwindling in recent years and with the cooperative itself being on negative ratings watch, CFC was forced to issue in the bond market and enter swaps. The bond was priced with a 53Ž4% coupon and in the swaps the company will receive that rate and pay roughly 175 basis points over the CP base rate.

The swaps were entered into with three counterparties from among the 23 in the CFC's bank group. Suter said JPMorgan led the deal, but the cooperative views its swaps business as a reward and thus had other banks, which he declined to name, act as counterparties.

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