Question: In May 2004 Sysco Corporation the distributor of food and
In May 2004, Sysco Corporation, the distributor of food and food-related products (not to be confused with Cisco Systems), announced it had signed an interest rate swap. The interest rate swap effectively converted the company’s $100 million, 4.6 percent interest rate bonds for a variable rate payment, which would be the six-month LIBOR minus .52 percent. Why would Sysco use a swap agreement? In other words, why didn’t Sysco just go ahead and issue floating-rate bonds because the net effect of issuing fixed-rate bonds and then doing a swap is to create a variable rate bond?
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