Magazine article American Banker

US Savings and Loan Participates in Cross-Currency Interest Rate Swap; Fixed-Rate Financing Involves Australian Bank, European Relief Fund

Magazine article American Banker

US Savings and Loan Participates in Cross-Currency Interest Rate Swap; Fixed-Rate Financing Involves Australian Bank, European Relief Fund

Article excerpt

NEW YORK -- An American savings and loan took part in an interest rate swap with a twist last month, enabling it not only to gather fixed-rate funds but to indirectly tap into relatively cheap foreign currency markets.

The operation, called a cross-currency interest rate swap, brought together the thrift, an Australian Bank, and a European relief fund. It allowed all the parties to raise capital more cheaply -- in the desired currency -- than they otherwise could.

The swap was orchestrated by Salomon Brothers Inc., which received a commission up front in both Swiss francs and dollars. The deal's final tally included two public offereings and one private one, which served as the basis for two interest rate swaps and one currency swap. Other cast members included a Canadian agent bank and another underwriter.

No details were available on the size or name of the thrift involved in the deal. A Salomon Brothers spokesman said it is not unusual for participants in interest rate swaps to ask for anonymity.

The arrangement started with call from Neal P. Benedict, a vice president in the International Capital Markets Services Group at Salomon Brothers, to the Council of Europe Redevelopment Fund. The fund is a European economic aid agency that helps people in their own countries who have become refugees through political upheaval or natural disaster, or who have become migrant workers fro economic or political reasons.

The fund is a highly rated borrower, but because of the pletora of sovereign European issuers in the Swiss franc market, it is forced to pay higher rates when borrowing in that market.

But because private Japanese investors are not as inundated by sovereign European borrowers, the fund was able to get AAA rates on a $43.5 million, U.S. dollar-denominated, private placement there. However, the fund prefers European currency-denominated debt to better match its loans, which are low-coupon and denominated in European currencies. …

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