J.P, Morgan & Co. raised $200 million in the Euromarkets on Thursday, using an interest-rate collar to lower its cost of capital.
The 10-year subordinated debt carries a coupon of one-eighth of a percentage point below the three-month London interbank offered rate and was priced at 99.85. Three-month Libor is about 3.50%.
The rate collar calls for a minimum interest rate of 5% and a maximum of 10%.
Euromarket sources estimated that Morgan's all-in borrowing cost, including underwriting fees and the cost of the collar, was about equal to Libor. It saved 10 to 15 basis points compared to the cost of issuing 10-year fixed-rate debt and swapping it into floating-rate debt, said sources.
The issue was sold to borrowers who ususally do not buy subordinated debt but were attracted to the Morgan name, its high debt rating, and the 5% minimum coupon, investment bankers said.
The notes were rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's Corp.
Kidder Peabody International Ltd. was lead manager.
After the Morgan issue, Landeskreditbank Baden-Wurttemburg of Germany and Credit Local of France, both triple-A-rated banks, issued a total of $400 million in debt with rate collars.
Republic New York Corp., one of a handful of U.S. banks with strong enough ratings to issue this type of security, was rumored to be mulling a similar issue of $150 million to $200 million.
Republic officials were unavailable to comment on the rumored deal, which sources said could come to market as early as today.