Reduce vulnerability to changes in interest rates. Tame your interest rate risk and borrow with the confidence of knowing your costs.
Interest rate hedging is a flexible solution tailored to each company’s specific situation, goals, and risk tolerances. A sound interest rate hedging program gives you confidence that your company has taken steps to mitigate unexpected rate moves.
A well designed hedging program aims to help:
- Protect your business from interest rate movements.
- Make your interest costs and debt payments predictable.
- Opportunistically take advantage of market aberrations like interest rate curve inversions.
- Establish a policy for fixed vs. floating debt rate debt and rebalance to stay aligned.
- Account for the specific features of your business’s loans (e.g. Libor floor).
- Possibly cut interest costs by taking on floating rate loans or equipment leases and hedging separately.
Companies are often exposed to interest rate risk through:
- Reliance on floating rate credit lines.
- Many mid market companies have revolving credit lines that provide much of their working capital funding. How much would rise in interest rates increase the company’s funding costs?
- Plans to borrow additional money.
- Plans to borrow for large capital expenditures, real estate purchases, or to roll over a maturing fixed rate term loan or mortgage in the next 12-24 months present a decision point for companies. How would a rise in rates impact the company’s budget for the project?
INTEREST RATE HEDGING FOR MID-MARKET COMPANIES
This guide outlines how to quantify your interest rate risk, define your company’s tolerance, and formulate your hedging strategy.
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