Question
LMT has a high credit rating and can borrow from capital markets at a fixed rate of 7% or floating rate of SOFR+1%. GD has
LMT has a high credit rating and can borrow from capital markets at a fixed rate of 7% or floating rate of SOFR+1%. GD has a lower credit rating and can borrow at a fixed rate of 10% or floating rate of SOFR+3.5%. GD currently has floating rate debt, but would like to switch to fixed rate debt. LMT currently has fixed rate debt, but would like to temporarily switch this financing to floating rate debt.
If these companies enter into an interest rate swap agreement where LMT makes a floating rate payment of SOFR+.9% to GD in exchange for fix rate payments of 8.2%, what would LMTs net payment be after the swap?
What would GDs net payment be after the swap?
Would this swap agreement be useful for both companies?
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