Sun International Hotels, a Bahamas-based international resort and gaming company, is considering entering an interest-rate swap to convert fixed-interest rates on USD500 million in high-yield debt into a synthetic floating-rate liability. Omar Palacios, director of investor relations in Fort Lauderdale, Fla., explained, "I think right now is a good opportunity because of the steep curve." The company would enter swaps on three bond offerings that carry coupons of 8.75%, 8.68% and 9%. Palacios said it is too early to determine the rates the company would seek to pay and receive in the swap. He added it is likely to be a plain-vanilla swap with a maturity of two-to-five years.
It likely would enter a swap in conjunction with Sun's plans to renegotiate a USD375 million credit facility, Palacios said. Sun has used its high-yield debt to replace USD355 million of bank debt, which will mature in August next year. The credit line is priced at LIBOR plus 175 basis points-250bps. Sun has traditionally used swaps on a regular basis as an opportunistic way to gain exposure to more favorable interest rates. "Right now our capital structure is all fixed. We need some type of floating element," Palacios added. Sun has USD521 million in debt.
Bear Stearns, Bank of America and CIBC are on Sun's shortlist of potential counterparties for the deal. "Anyone of these banks could be tapped for the interest-rate swap," Palacios added.