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Manufacturer Considers Swap

07 Apr 2002

John Deere Capital is considering entering an interest-rate swap to convert a 10-year USD1.5 billion fixed-rate bond it issued in mid-March into a synthetic floating-rate liability, according to Greg Derrick, a representative in the company's investor relations department. The company opted not to enter a swap at the same time as the bond sale because it wanted to see if rates would go up. It does not think rates will rise in the near term, so is now looking at entering the swap. With three-month LIBOR hovering around 2%, the company would look to pay a floating rate that was no more than 300-350 basis points above LIBOR before entering a swap. The finance arm of the Moline, Ill.-based producer of construction and forestry equipment, would look to enter a swap in which it receives a fixed rate equal to the 7% coupon of the bond and pays a floating rate. The maturity on the swap would equal the 10-year maturity on the bond offering. JP Morgan and Salomon Smith Barney co-managed the bond offering.

Derrick said John Deere has used swaps in the past, but declined to provide further details. Moody's Investors Service has assigned an A3 rating to John Deere's bonds, while Standard & Poor's has rated them A minus.

07 Apr 2002