Insights

Banks use back-to-back swaps to meet borrower demand for long-term fixed-rate loans. With back-to-back swaps, the bank enters a floating-rate loan and a fixed-rate swap with the borrower and then a second, offsetting swap with a dealer counterparty.

The upfront costs of interest rate caps have increased significantly in the past six months as short-term rates have risen and expected payouts on these caps have increased in probability and amount. This piece analyzes how cap pricing in the USD interest rate market factors-in expected future...

A financial institution should evaluate two options when competing for borrowers who need fixed-rate funding: providing a traditional fixed-rate loan or providing synthetically fixed-rate financing via a floating-rate loan and a pay-fixed swap. Review the six benefits to consider when evaluating the best solution to provide your borrower with long-term, fixed-rate financing.

Cross-currency swaps are becoming an increasingly common derivative within corporate debt capital structures. As organizations assess whether this product is befitting to their profiles, they consider a variety of questions — ranging from trade structuring to accounting treatment. In this...

You may not have noticed, but your interest rate hedge may be worth quite a bit of money. As the Fed turns more hawkish in the face of inflation (which seems to be more than transitory), the forward curve for short-term rates has steepened significantly. The market is pricing in as many as seven...

An interest rate cap is essentially an insurance policy on a floating rate, most frequently SOFR. It has three primary economic terms: notional, term, and strike rate.

Movements in short-term rates like SOFR, used as indices for floating-rate financings, present a commonly understood source of interest rate risk for commercial real estate (CRE) borrowers. Movements in longer term interest rates can also create risk for borrowers. This guide examines the sources...

An interest rate swap is a financial contract in which two parties agree to exchange distinct cashflows for a given period of time. Commercial real estate (CRE) borrowers often encounter these swaps as a component of bank lenders’ fixed-rate financing offerings.

Understanding the tactical steps involved in executing on an interest rate cap can help CRE investors plan and use their time efficiently prior to closing on a loan. Request your interest rate cap execution checklist here.

These frequently asked questions address some of the common issues that commercial real estate borrowers face when considering an interest rate swap. These include swap rates and mechanics, prepayment/breakage, and documentation.

Mergers and acquisitions involve a multitude of complexities and risks. Speed and accuracy at every stage of an acquisition is critical to not only winning the deal but also giving the transaction the best chance of financial and strategic success. Financial risk associated with the valuation of...

An interest rate forward curve for a market index (like SOFR) is, at a discrete moment in time, a graphical representation of the market clearing forward rates for that index.

Here are some key benefits of utilizing an advisor on a lender-required swap.

Interest rate swaps are one of the tools that commercial real estate (CRE) borrowers can use to manage the risk associated with floating-rate loans. Borrowers choose to purchase swaps with the rationale that they are “free”, especially when compared to an interest rate cap that typically requires...

In an environment when USD interest rates drop, many swaps become significant liabilities. In such a situation, companies can consider a blend-and-extend strategy, which reduces their swap rate to lower cash interest expense and extends hedge coverage by several years.

A guide to help understand frequently referenced topics and definitions of commonly used terms in hedge accounting.

Commercial real estate (CRE) lenders have begun to adopt SOFR and other LIBOR alternatives, presenting borrowers with different variations of these rates. This overview provides a summary of the common permutations of these rates and borrower considerations for each.

To choose the best interest rate hedging strategy, understand the pros and cons of derivative syndication as opposed to competitive auctions, direct negotiation and other alternatives.

To spot important data trends and crystalize them into actionable insights, corporate treasurers need robust reporting capabilities within their financial risk management systems. Advanced reporting tools should include a complete dataset, flexible-but-focused dashboards, and proactive trend...

We are often asked what we are seeing with respect to ESG terms or provisions in financings, derivatives, investment vehicle structures, etc. While a tremendous amount of attention is being allocated to ESG broadly across the global real estate markets, there is a wide variance of approaches,...

The sharp rise in interest rates in the last few weeks has shone a light on the risk of returns being eroded as the cost of debt assumed in an investment decision is now substantially higher than the original investment case. It has also led borrowers to look ahead to upcoming refinancings and...

A global retail company’s spreadsheet-based hedging process had become size-constrained and unable to expand with its growing global footprint, leaving the company materially exposed to new-market risk.

The National Credit Union Administration (NCUA) Board approved the modernization of its existing derivatives rules, making them more principles-based and flexible for federal credit unions (FCUs) to manage interest rate risk. These regulatory changes remove the lengthy application process and...

In this webinar, we will review the recent changes to the NCUA’s rules for derivatives and discuss hedging strategies that credit unions can apply to manage their interest rate risk. We will identify the advantages of adding derivatives to the ALCO toolkit while also considering some challenges...