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Public Agency Hedges Bond

25 Nov 2002

Bank Nederlandse Gemeenten, the principal Dutch public sector finance agency, has entered a cross-currency interest rate swap on a recent GBP100 million (USD159 million) bond offering to convert it into a euro-denominated synthetic floating-rate liability. Bianca Ydema, senior manager in the capital markets group in Den Haag, said BNG issued the bond in sterling because of demand from a major U.K. investor, which she declined to name. It converted the offering into floating-rate euros to match its lending portfolio.

In the swap, the agency receives the 4.625% coupon on the bond and pays a spread below Euribor. Ydema declined to disclose the counterparty on the transaction, but stated BNG only uses derivatives houses with a minimum rating of AA.

The agency has EUR10 billion (USD10.06 billion) in funding needs for the next calendar year. Ydema said BNG has not yet decided whether it will use interest rate swaps or fx swaps on future issuance, adding it depends on investor demand for debt in currencies other than euros.

25 Nov 2002