New Britain, Conn., Sells $58 Million Swaption to France's Societe Generale

Piazza, Johanna
April 2003
Bond Buyer;4/17/2003, Vol. 344 Issue 31617, p40
Trade Publication
After months of internecine grappling over the use of a complex derivative, New Britain, Connecticut, signed off on an agreement in May 2003 to sell an option for a fixed-to-floating rate swap on 58 million dollars of the city's outstanding bonds sold to finance fire and police department pensions. The contract gives the French bank Societe Generale, currently rated Aa3 by Moody's Investors Service, the option to exchange interest rate payments in two years on 58 million dollars of the city's taxable fixed-rate pension bonds. Under the European model adopted in the contract, if the investors choose not to exercise their option on that single date in April 2003, the contract will become null. But if Societe Generale SA does elect to exercise it, New Britain will be bound to pay the Libor rate to the French bank for the next 16 years, until the pension bonds retire in 2021.


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