Corporate hedging practices hold steady amid changing landscape, according to Chatham Financial’s State of Financial Risk Management Report

Kennett Square, PA, January 21, 2025 — Chatham Financial, a global leader in financial risk management technology and advisory, published its State of Financial Risk Management Report, an independent study of nearly 1,300 U.S. public companies, examining risk exposures, hedging, capital markets activity, and hedge accounting practices.

Selected highlights of the report include:

• Interest rate risk hedging: 2023 was marked by an increasingly restrictive rate environment, and major central banks continuing the fight against inflation. Companies with higher annual revenue were more likely to hedge interest rate risk, with over half (52%) of companies exposed to interest rate risk earning more than $20B implementing hedging to some degree. Notably, the professional and business services sector had the least interest rate exposure yet hedged the most. Additionally, vanilla interest rate swaps dominated the hedging landscape among public corporations, accounting for 81% of hedging instruments, while options and other products comprised the remaining 18%.

• Foreign currency risk hedging: Foreign currency volatility diminished in 2023, yet the dollar experienced a “see saw” effect throughout the year. This year’s report analyzed net investment foreign currency programs for the first time, uncovering an interesting trend: These programs were over three times more common among companies with annual revenue above $20B than among companies with revenue under $1B, highlighting a notable contrast with the usage of balance sheet and cash flow programs. Creditworthy companies hedged foreign currency at a much higher rate and employed cross currency swaps more frequently, mainly through net investment programs. Only 48% of high-yield companies hedged their foreign currency risk compared to 72% of investment-grade companies.

• Commodities risk hedging: Industries involved in commodity expenditure or sales were more prone to hedging, with 35% of commodity-exposed corporates above $5B in revenue hedging their commodity risk. Natural resource and mining companies led the commodity hedging space, while manufacturing companies were the second most active. Swaps and futures (67%) dominated product usage among industries overall, outpacing options (15%) and other products (18%).

• Hedge accounting: In 2023, interest rate and foreign currency programs were predominantly designated in hedge accounting relationships. Of companies that hedged interest rate exposure, 87% sought and achieved hedge accounting to some degree. For those managing foreign currency exposure, 93% achieved hedge accounting treatment. In contrast, only 57% of companies hedging commodity risk secured hedge accounting designation.

“Although 2023 was less volatile than 2022 in many respects, risk management strategies were still of paramount importance for publicly listed corporations,” said Amol Dhargalkar, Chairman and Managing Partner at Chatham Financial. “As noted in the report, many public corporate hedging practices remained consistent with prior years, such as the continued use of swap- and forward-style products, a prioritization of interest rate and foreign currency hedging, and a hyper focus on achieving hedge accounting. We believe this research offers valuable insights for companies, enabling them to understand how peers within their industry and across the broader marketplace are managing financial risk.”

Download a copy of the report.

Methodology

Chatham Financial reviewed and analyzed 2023 annual 10-K filings of 1,271 publicly listed U.S. corporations, with revenues greater than $500 million, to provide insight into risk management strategies and trends in the marketplace. Chatham excluded certain industries in order to identify a population of companies whose practices are not skewed by the nature of the business they operate in. Examples of these exclusions would include banks, credit unions, insurance, investment banking, oil and gas refining, oil and gas production and exploration, and oil and gas transportation and storage.

Chatham classified companies into groupings based on annual revenues, creditworthiness, profitability and debt metrics, as well as into sectors and sub-sectors using the North American Industry Classification System (NAICS). For analysis purposes, Chatham identified five revenue groupings and ten broad sectors to compare companies in the data set. Revenue groupings were $0.5B–$1B, $1B–$2B, $2B–$5B, $5B–$20B, and companies greater than $20B. The primary industry sectors included manufacturing, professional and business services, trade, transportation and utilities, financial activities, information, natural resources and mining, leisure and hospitality, construction, and education and health services.

About Chatham Financial

Chatham Financial is the largest independent financial risk management advisory and technology firm. A leader in debt and derivative solutions, Chatham provides clients with access to in-depth knowledge, innovative tools, and an incomparable team of over 700 employees to help mitigate risks associated with interest rate, foreign currency, and commodity exposures. Founded in 1991, Chatham serves more than 3,500 companies across a wide range of industries — handling over $1 trillion in transaction volume annually and helping businesses maximize their value in the capital markets, every day. To learn more, visit chathamfinancial.com.

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