From: "Barrett, Paul S"
To: Brad Wechsler <1 k "Jeffrey Epstein (jeevacation®gmail.com)"
<jeevacation@gmail.com>
CC: "Nelson, Justin D"
Subject: EUR Cross-Currency Funding Strategy to cheapen a EURO denominated floating rate loan
Date: Mon, 06 Jun 2016 17:15:22 +0000
Brad/Jeffrey
For clients that have EUR based Libor loans.
Credit lines at many banks floor the floating index at 0%. With 1-month Euribor fixing at -0.25%, many borrowers
don't realize the benefit of negative interest rates.
You can bypass this floor by borrowing in USD at 1-month Libor (plus a spread) and using a cross-currency swap
to create a synthetic EUR loan. The cross currency basis swap pays me USD Libor and you pay -0.35% (so 35bps
actually get paid to you as it is negative). This allows you to not only capture the benefit of negative rates but also
cheapen funding from the cross-currency differential in the market.
Results
- By creating a synthetic EUR loan via cross-currency swaps, you can reduce funding costs by roughly 60 bps for 2
years (combination of savings from negative Euribor rates and negative cross-currency basis).
Paul
Paul Barrett I Managing Director I Global Investment Opportunities Group I E. Morgan Securities LLC E. Morgan Private
Bank I M. Morgan Chase Bank M.
320 Park Avenue, le Floor, New York, NY 10022 I T: I F:
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