NEW YORK -- The loss of swaps-related earnings that corporations enjoyed in the early 1990s may depress second-quarter earnings, according to a report by Salomon Brothers Inc.

Many corporate treasurers took advantage of low interest rates in the early 1990s to swap fixed-rate debt into lower-cost floating-rate debt.

The report's authors estimate that 10% to 20% of the companies studied used swaps to lower their interest-rate expenses.

Lower interest expenses generated by swaps, long-term debt refinancing, and equity-for-debt substitutions accounted for 28% of the increase in Standard & Poor's industrial operating earnings for 1991 to 1993, the authors estimate.

Data Scarce

How much of that 28% was derived from swaps is impossible to determine with accuracy, said Marc Usem, one of the report's authors, because many companies don't disclose their swaps activity.

But he estimates that swaps-related savings accounted for 10% to 50% of the total interest expense savings.

Those swaps are no longer contributing to earnings and will soon start eating into earnings if rates continue to rise, the report says.

For example. a corporation could have reduced the costs of 7% long-term debt by 1.5 points last October by entering into a three-year swap to pay the London Interbank Offered Rate, or Libor, which was then 3.375%, and receive a fixed rate of 4.30% (the three-year Treasury note coupon plus a 30-basis-point spread).

But if Libor rose to 6% by the end of 1995, such a swap would lose 2.78 points.

'Slightly Less Ebullient'

"Second-quarter earnings just might be slightly less ebullient than what analysts now forecast," the authors say.

"More important. if we are correct about short-term rates continuing to rise well into 1995, interest expense will swing from a major increment to a major decrement to corporate earnings."

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