German carmaker BMW has broken new ground in its swap for the fixed-rate tranches of a recent bond issue.
The $1.25 billion swap is thought by those who worked on it to be the biggest yet linked to the secured overnight financing rate (Sofr), one of the risk-free rates (RFRs) that are gradually being adopted by financial markets as alternatives to Libor, which is being phased out.
The underlying fixed-rate bonds were a March 31 sale by BMW US Capital of $750 million of 0.8% three-year paper at 50 basis points over Treasuries and a $500 million 2.55% 10-year at 88bp over.
That issue also included a $750 million floating rate tranche priced at 53bp over Sofr. Bookrunners on the $2 billion deal were Barclays, BNP Paribas, Credit Suisse, JPMorgan and Morgan Stanley.
Bankers close to the swap think the deal is the biggest Sofr-linked swap for a European corporate – and even possibly in the US – but can’t be certain because of the lack of transparency around such transactions.
However, the trade is without question an important step in the transition to new benchmark risk-free rates in the US market.
From a corporate perspective, the key issue around benchmark transition has been not derivatives but liabilities, with the vast majority of their loans and leases linked to Libor.
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