Marks & Spencer has entered into a cross-currency interest-rate swap on the back of a EUR550 million (USD491 million) bond offering last month. Jeff Denton, head of corporate finance in London, said the British retailer converted the fixed-rate deal into a synthetic floating-rate, sterling-denominated liability. "Our requirement is floating sterling, but we funded in euros to meet demand from investors," he added. Morgan Stanley and Deutsche Bank, who co-managed the bond offering, were counterparties in the swap with two other relationship banks whom Denton declined to name. In the swap, Denton said the retailer receives the 5.125% coupon to pay its five-year bond and pays just over 100 basis points over six-month LIBOR.
The company entered the swap because it converts all its non-sterling proceeds into sterling, according to Denton. M&S chose to issue the debt in euros because Continental investors tend to prefer shorter paper, whereas British investors like the long end. It also raised GBP375 million (USD539 million) through a 10-year fixed-rate offering, which it has left unchanged. It transacted the two deals so that it can have a balance of maturities in its portfolio.
M&S only uses derivatives to hedge its exposure. Proceeds will be used as part of the company's regular financing for its retail finance business, which includes its charge card and loan activities.
