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.

Other lssues

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.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.