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Derivatives

Oil Giant Considers I-Rate Swap

ChevronTexaco, the corporate oil giant formed last month after Houston-based Chevron and New York-based Texaco agreed to merge, is considering entering interest-rate swaps to hedge the floating-rate debt in its nearly USD20 billion debt portfolio that will result from the merger, according to Roger Haley, an official in ChevronTexaco's treasury department who deals specifically with derivatives. He added the consolidated debt is USD16-17 billion following the merger and a majority of that debt was inherited from Texaco, which holds its debt in floating rates. But he declined to comment on the exact interest-rate composition of the portfolio.

The company is currently discussing the possibility of locking in a synthetic fixed interest-rate on a portion or all of the debt. Haley said it would enter swaps in which it would receive a floating interest-rate and pay a fixed rate. "We're starting to go through our post merger plans. Interest-rate swaps are part of the talks but there have been no conclusions," Haley said. It would be several months before the company would pull the trigger on a swap, he added.

Analysts who cover the newly formed company said its not a matter of if ChevronTexaco will use interest-rate swaps but when. "They're just working on weeding through all the past trades and deciding what will need to be unwound. It's very possible they could look to swap the entire debt," said one analyst.

Standard & Poor's has rated ChevronTexaco's debt AA. Chevron, which has used interest-rate swaps in the past, has master swap agreements with 10 counterparties, which would be considered for a swap deal, Haley said.

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