Casino Guichard-Perrachon has entered an interest-rate swap to convert a EUR200 million (USD181 million) fixed coupon bond into a synthetic floater. Laurent Zecri, head of interest-rate risk management in Saint-Etienne, said in the swap the casino pays a 6% fixed rate and receives three-month Euribor plus 89 basis points. The swap mirrors the bond's size and 2008 maturity.
Zecri said the group keeps all of its EUR3.8 billion debt in floating rate because it more accurately matches the casino's revenues. Zecri explained when the European Central Bank cuts rates it usually indicates a slowing economy and therefore falling casino revenues, the reverse is true of interest-rate hikes. BNP Paribas, Crédit Agricole Indosuez, Merrill Lynch and J.P. Morgan are counterparties to the swap and lead managed the bond. Three-month Euribor was 4.80% on Monday. Spokespersons at the four banks did not return calls.
The casino issued the bond because the banks approached it with investors already lined up. The deal offered a better funding rate than issuing an FRN, Zecri explained, although he was unable to detail how much this issue shaved off its all-in cost of funds. It will use the proceeds to refinance debt.
Relationship and price are the most important factors in choosing a counterparty, according to Zecri. The only type of derivative instruments the casino uses are interest-rate swaps, caps and floors. It buys floors as part of collar transactions with the intention of selling them at a profit if they move into the money. All of its debt is in euros.