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The back-to-back born in the Dorchester

Peter Lee and Steven Irvine

Issuers: European Investment Bank;

Tennessee Valley Authority

Amounts: $1 billion; Dm1.5 billion

Launched: Tuesday September 10

Dual lead manager: Lehman Brothers

In early September the European Investment Bank (EIB) and the Tennessee Valley Authority (TVA) pulled off an unexpected coup in the capital markets: a back-to-back swap. Each borrower cut several basis points off its borrowing costs by simultaneously launching two 10-year global bonds and swapping the proceeds with one another.

On September 10, TVA raised Dm1.5 billion in its first foreign-currency borrowing. Meanwhile, in a completely unrumoured move, the EIB launched its debut global bond, raising $1 billion; more than 50% of the bonds were sold in the US. The EIB's first global was fresh evidence of the bank's new strategic approach under its new head of borrowing, the World Bank-trained René Karsenti. Each borrower tapped new investors and thus achieved fine pricing. They swapped the funds because the EIB has more need for Deutschmarks, and TVA for dollars.

It was an ideal solution to the challenge both borrowers faced to widen their international investor base, without paying up to do so.

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