Question
Company A is a AAA-rated firm desiring to issue five-year Floating Rate Notes (FRNs).It finds that it can issue FRNs at six-month LIBOR + 0.75%
Company A is a AAA-rated firm desiring to issue five-year Floating Rate Notes (FRNs).It finds that it can issue FRNs at six-month LIBOR + 0.75% or at three-month LIBOR + 0.50%.Given its asset structure, three-month LIBOR is the preferred index.Company B is an A-rated firm that also desires to issue five-year FRNs.It finds it can issue at six-month LIBOR + 1.25% or at three-month LIBOR + 0.75%.Given its asset structure, six-month LIBOR is the preferred index.Assume a notional principal of $10,000,000.The Quality Spread Differential (QSD) is 0.25%. The swap bank receives 0.15% of the QSD and each company 0.05%.What is a possible all-in cost arrangement that would be applicable to Company A to benefit from a floating-for-floating rate swap if Company A share 0.05% of the remaining savings?
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