Norwegian Funding Agency Hedges I-Rate Risk

  • 24 Mar 2003
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Kommunalbanken, a Norwegian local government funding agency, has entered an interest rate swap on a recent NOK400 million (USD55.35 million) bond offering to convert it into a floating-rate liability. Thomas Moller, finance director in Oslo, said the agency converts all of its fixed-rate issuance into floating-rate and then enters additional swaps to convert it back into fixed if its liability portfolio contains fixed rate loans. Kommunalbanken plans to raise an additional USD2.5 billion in the bond market this year.

In the swap, Kommunalbanken pays three-month NIBOR minus a spread and receives the bond's 5% coupon. Three-month NIBOR was 5.45% Tuesday. Deutsche Bank is the counterparty on the swap and was also the lead manager on the bond, noted Moller. The agency chose the German bank because it has wide distribution to retail investors, Moller said.

Kommunalbanken prefers its derivatives counterparties to be AA rated, but will enter swaps with firms with lower ratings if it has a collateral support annex in place, explained Moller.

  • 24 Mar 2003

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1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.81%
5 Barclays 267,252.43 1082 5.77%

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1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

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Rank Lead Manager Amount $m No of issues Share %
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3 Citi 17,812.08 111 6.86%
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5 Goldman Sachs 17,333.10 99 6.67%