Striking the right balance in hedging when your lender offers derivatives
Summary
When borrowing from a bank that can offer derivatives themselves, borrowers often face the choice between using their lender’s in-house hedging services directly or partnering with an independent advisor. While the convenience of staying with a lender can be appealing and lenders may strongly encourage borrowers to work directly with them, partnering with an independent advisor like Chatham offers critical advantages that optimize your hedging strategy to achieve your goals.
Consider the following four points as you evaluate your next steps.
1. Unbiased guidance with your best interests in mind
Independent advisors like Chatham work exclusively for you, providing impartial advice tailored to your specific needs. Unlike lenders offering in-house solutions, Chatham has no stake in the transaction’s outcome other than ensuring it aligns with your financial objectives. This neutrality eliminates conflicts of interest, giving you confidence that every recommendation is made with your best interests in mind, not the bank’s.
2. Competitive pricing without compromising relationships
Many borrowers hesitate to look beyond their lender’s in-house hedging services out of concern that it might strain the banking relationship. While this is a valid consideration, securing competitive pricing and maintaining strong lender relationships don’t have to be mutually exclusive.
Lender-provided hedging services often lack the transparency needed to assess whether you’re securing the most competitive pricing. Chatham introduces a market-driven process that ensures both fair pricing and relationship preservation. By facilitating auctions that include your lender alongside other banks, we encourage lenders to offer their most competitive terms while still recognizing the value of your core banking relationship. Chatham’s unmatched transaction data further validates pricing, giving you confidence that you’re achieving the best execution available.
We also manage the competitive process on your behalf, ensuring you get market-driven pricing without the challenges of direct negotiation. With Chatham handling these discussions, you can focus on maintaining a strong, long-term relationship with your lender while securing the best possible terms.
Should you decide that you prefer to work exclusively with your lender for the derivative, Chatham can still help ensure their pricing is in line with market standards and that any additional premium you choose to pay to preserve the relationship is reasonable and consistent with your expectations. We can also ensure the profitability between the loan and the derivative is properly allocated, as this can have implications should you need to terminate the loan and/or derivative in the future.
3. Unmatched market perspective
The complexity of financial markets demands a high level of specialized knowledge. Chatham advises on more than $4 billion in hedged notional every day and facilitates over $1 trillion in transaction volume annually. With 700+ employees worldwide and 3,500 clients across industries, we bring deep market insights and unmatched data to every engagement. This scale allows us to identify opportunities, mitigate risks, and design strategies that adapt to ever-changing market conditions. Whether you’re navigating acquisitions, refinancing, or portfolio restructuring, our insights ensure your strategy is aligned with both your immediate needs and long-term goals.
4. Enhanced negotiating power and accountability
An independent advisor strengthens your negotiating position by bringing market data and transparency into the equation. Partnering with an advisor prior to signing a term sheet is critical so they can review your hedging requirements, which can have implications for your choice of derivative strategy, pricing for the derivative, and the ability and breadth of external counterparties competing for your business. Chatham holds banks accountable and benchmarks costs. We secure fair pricing and favorable terms for your transaction, whether you choose to execute directly with the lender or bring in multiple counterparties to compete.
Choose confidence and expertise
At Chatham Financial, we embody the qualities that make an independent advisor an invaluable partner in your hedging strategy. With over 30 years of experience, unmatched access to market data, and a steadfast commitment to transparency, we ensure that you achieve the best possible outcomes for your financial goals. Talk to your relationship manager or use the form below to learn more.
Disclaimers
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.
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