Manufacturer Leans Toward I-Rate Swap
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Manufacturer Leans Toward I-Rate Swap

Manitowoc, a Midwestern industrial manufacturer with annual revenue of roughly USD1.2 billion, is "strongly considering" entering its debut fixed-to-floating interest-rate swap, according to Carl Laurino, treasurer and interim cfo in Manitowoc, Wis. He said the company expects to take advantage of current rates and convert a fixed-rate, high-yield bond it sold earlier this month into a synthetic floater. Converting the USD175 million deal would be the first time it has switched from fixed into floating, although it has used interest-rate swaps in the past to convert floating-rate debt into fixed-rate obligations. The company has about USD700 million in outstanding debt.

The manufacturer is looking at enter the swap now because low rates make it attractive to convert the 10.5% coupon on the bond into a floater. Laurino anticipates the company will be able to save itself "well in excess of 300 basis points" by entering a swap where it would receive the coupon on the deal for the 10-year maturity and pay a floating rate, even though he said it would expect to pay a spread of more than 500bps over six-month LIBOR. "That represents a pretty attractive saving in the face of an interest-rate environment that, if anything, looks like it might have more downward pressure," he said, referring to growing calls for the Federal Reserve to lower rates to jumpstart the U.S. economy.

Despite the obvious savings, he said Manitowoc has not yet entered a swap and is still evaluating the situation. "We need to look at everything as it relates to the capital structure that we have in place and make sure we don't put in place a strategy that...might provide us with savings [but] might have us take on more risk. You don't just want to look in a short time window." He said this is especially important given the company's recent acquisition of Grove Investors, which the bond sale financed.

Credit Suisse First Boston and Deutsche Bank led the bond sale, but Laurino said the swap business will not necessarily go to them. He said Manitowoc selects counterparties from among its relationship banks, as they all "have an appetite for as much ancillary business as they can get."

Moody's Investors Services rates Manitowoc B2 and Standard & Poor's rates it B plus.

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