BAA, the owner and operator of seven U.K. airports, is considering entering an interest-rate swap on the back of a recent 30-year GBP700 million (USD1 billion) bond offering. The company priced the bonds earlier this month on the same day as the Bank of England and European Central Bank cut rates by 50 basis points. Wan Chow, treasury manager in London, said the bond offering was opportunistic and as a result the company has not yet decided whether it will convert the fixed-rate bond into a floating-rate liability. The airport owner pays a fixed 5.75% coupon on the bond.
Chow said a decision on the swap will be made in the foreseeable future, declining further comment. He also declined to detail the factors that would influence the decision. If it does execute the swap it will choose counterparties from among its core relationship banks with high credit ratings. Royal Bank of Scotland and Barclays Capital sold the bond deal but he said swap counterparties will not be limited to those two firms.
Prior to the offering BAA entered into a lock on 30-year gilts. Chow declined to detail the terms of the gilt lock, which was done with the lead managers of the bond. Generally speaking, Chow explained the company receives a fixed coupon, matching the yield on 30-year U.K. government bonds and pays the market price of gilts.
For example, "if we locked it in at 5% and then [the price] went up, we would gain on the bond but lose on the gilt lock," he said. BAA is rated AA minus by Standard & Poor's and A1 by Moody's Investors Service.
