Question
An oil driller recently issued $250 million of fixed rate debt at 4% per annum to help fund a new project. It now wants to
An oil driller recently issued $250 million of fixed rate debt at 4% per annum to help fund a new project. It now wants to convert this debt to a floating rate obligation using a swap. A swap desk analyst for a large investment bank, that is a market maker in swaps, has identified four firms interested in swapping their debt from floating rate to fixed rate. The following table quotes available loan rates for the oil driller and each firm:
| Firm | Fixed rate (in %) | Floating rate (in%) |
| oil driller | 4.0 | 6 month LIBOR + 1.5 |
| Firm A | 3.5 | 6 month LIBOR + 1.0 |
| Firm B | 6 | 6 month LIBOR + 3.0 |
| Firm C | 5.5 | 6 month LIBOR + 2.0 |
| Firm D | 4.5 | 6 month LIBOR + 2.5 |
A swap between the oil driller and which of the above mentioned firms offers the greatest possible combined benefit?
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