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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Real Property - Finance

Date & Time
  • event Date

    Tuesday, August 27, 2024

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$347.00
CLE
ALL

This CLE webinar will describe the use of interest rate caps and swaps as a hedging strategy to mitigate the risk and uncertainty of volatile interest rates. The panel will address the circumstances when an interest rate hedge is appropriate and best practices for documenting the transaction.

Faculty

Chrys A. Carey
Of Counsel
Morrison Foerster

Mr. Carey represents clients in a wide variety of derivatives transactions and advises them on derivatives regulatory and compliance issues. His clients include investment companies, hedge funds, foreign and domestic banks, central banks, multilateral development banks and corporate end-users. Mr. Carey negotiates ISDA Master Agreements and other trading documents, including prime brokerage documents, clearing and execution agreements and related collateral arrangements. He also advises his clients on a broad array of derivatives regulatory issues arising under the Commodity Exchange Act and the rules and regulations of the Commodity Futures Trading Commission.

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Scott L. Diamond
Of Counsel
Ballard Spahr LLP

Mr. Diamond is a capital markets lawyer with decades of experience in financial services and as lead attorney in regulatory matters, transactions and litigations. He co-leads the firm's Derivatives, Structured Products, and Secondary Markets team. Mr. Diamond’s practice focuses on complex transactional matters involving derivatives and securities, compliance, swaps, foreign exchange, agricultural commodities, metals, digital assets and non-linear products. He represents institutions in tax-exempt and taxable secondary market structures and collateralization. His practice encompasses complex structured products such as tax-exempt energy prepay transactions, total return swaps as synthetic loans and guarantees, tender option bonds and matters involving swap dealers, broker-dealers, introducing brokers, derivatives transactions and regulation. Mr. Diamond also has deep understanding of the derivatives and securities clearing process as well as FINRA and NFA rules and the intersection of securities, derivatives and identified banking products. He is a former Head of Investment Banking - Legal for a large multinational bank and has a wealth of derivatives, securities and banking experience.

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Description

Floating-rate commercial real estate mortgage loans present an interest rate risk for borrowers, lenders, and securitizations. The current increase in interest rates coupled with the downturn in rental income are exhausting interest rate reserves faster than anticipated and making long term refinancing difficult.

To mitigate exposure to these risks, market participants employ hedges usually in the form of interest rate caps or swaps. With a rate cap, the borrower enters into an agreement with a swap dealer that caps the interest rate at a specified level for a specific time period. A rate swap allows the borrower to switch their floating interest rate for a fixed rate usually with no additional premium, but with a payment obligation if the interest rate market declines below a certain point.

Under current market conditions, hedge agreements present both opportunities and risks for borrowers and lenders. Real estate counsel should have a thorough understanding of how these hedge transactions work and the financial risks they entail.

Listen as our authoritative panel discusses when hedge transactions should be employed, how they are priced, and the critical aspects of hedge documentation. The panel will also address the unique issues presented when existing financing or intercreditor agreements are in place.

Outline

  1. Market conditions and how interest rate hedges are currently being used
  2. Purpose of interest rate hedges
  3. Rate caps
  4. Swaps
  5. Security considerations
  6. Intercreditor arrangements
  7. Existing financings
  8. Interest rate hedge terms and documentation
  9. Looking ahead to the future use of interest rate hedging strategies

Benefits

The panel will discuss these and other key issues:

  • Under what circumstances are interest rate hedges appropriate in a transaction?
  • When should an interest rate cap be used over a swap and vice versa?
  • What are some key terms to consider in hedge documentation from the perspective of borrowers and lenders?
  • How do existing financings and intercreditor agreements impact hedge agreements?