The Voice of Commercial Real Estate Finance

Interest rates and hedging

Interest rates and hedging

Starting in March 2012, our CRE Loan Hedging working group sought to examine past and future market practices in loan hedging for CRE finance transactions in order to improve awareness of the issues and provide guidance to market participants.  It was chaired by Mark Battistoni, Chatham Financial, and co-chaired by lawyer Partha Pal.

In June 2013, the group launched CREFC Europe’s Guidelines for Interest Rate Hedging in European CRE Finance Transactions, covering the reasons for hedging, the ways it can be achieved, considerations to be taken into account and practical guidance for structuring transactions. The launch of the guidelines was supported by an educational seminar held in London and focusing on hedging fundamentals and hedging and senior debt funds.

While this group is not currently active, the broader subject remains topical.  In 2016 we organised two seminars (one in London and another in Frankfurt) to discuss the implications for our market of negative interest rates.

Libor/Sonia transition

More recently, the planned move away from the interbank offered rates (LIBOR and EURIBOR) that have underpinned floating-rate term financing markets has raised new issues.  Lenders (and borrowers) need to consider the potential impacts on existing facilities, and to keep an eye on the development of new term rates.  While we are not closely involved in policy discussions, we are keen to act as an information resource and link for our members, including notes of a mid-2020 discussion with Bank of England officials.  We jointly organised a seminar on the subject with the Property Finance Forum in September 2018, received expert-led presentations on the subject at a summer 2019 Board of Advisors meeting, and included sessions on the subject at our Autumn Conferences in both 2019 and 2020 (as well as in programming for YPREF, our network for young professionals).

Please contact Peter Cosmetatos if you would like further information or have suggestions for further activities.