Interest Rate Risk Management

As a company issues debt, whether to support the acquisition or divestment of an asset, or as part of its M&A activity, it must decide how to manage the financial risk associated with interest rate movement. Regardless of whether they secure fixed or floating rate financing there are associated risks. With floating rate debt, there are risks associated with rate movement. Similarly, fixed rate financing has rate implications at the time the rate is locked in and if and when the loan is refinanced later on.

There are risks associated with both approaches. Interest rate movement can have significant effects on investment and operating cash flows and returns. Even if rates are stable, rates can change quickly and such factors as government intervention and economic policy can drive rate changes in unpredictable ways.

Managing interest rate risk is not about trying to predict where rates will go, but, rather, having a strategy for managing capital structure and developing a plan that supports the overall business requirements and tolerance for risk.

Since 1991, Chatham has worked with companies across a wide range of industries to develop and execute strategies for managing interest rate risk. Our expertise supports clients in two key ways: First, our ability to develop strategies to mitigate interest rate risk from an economic, accounting and regulatory perspective. Second, we have proven success in executing transactions at a fair price and properly managing all aspects of the trade. Our clients’ confidence is grounded in our:

Practitioner Expertise and Experience: Chatham manages annually over $350 billion of underlying notional for more than 1200 companies globally. By working with organizations on such a wide spectrum of investments, plus the sheer volume of our engagements, we possess a unique perspective.

By incorporating a company’s risk tolerance profile, its confidence in its underlying borrowing needs, as well as its credit, regulatory and liquidity constraints. Chatham can evaluate the company’s unique situation against market best practices and other participants for informing terms, pricing, accounting treatment and reporting.

Benchmarking Perspective: Working with hundreds of counterparty banks on tens of thousands of transactions, we have an unsurpassed benchmarking perspective in the industry. When sitting on our clients’ side of the table, we add scale, market perspective, and confidence in all aspects of interest rate risk management.

Scaled Processes: We have worked on tens of thousands of trades to offset these and other types of interest rate risks and exposures. This experience gives us the ability to manage all risks associated with hedging around borrowing needs. Chatham offers proven and scaled processes across a full spectrum of our services, including arranging for bank credit while negotiating important completion of both pre-and-post trade documentation management. Through our direct experience working and negotiating with nearly 200 financial entities, our clients are confident that we can effectively and efficiently manage our clients’ swaps.

Sophisticated Modeling and Analytics: Through our modeling and analytics capabilities as well as proprietary technology, we can evaluate exposures and determine the strategy and instruments that best align with our client’s risk tolerance.

Proven Execution: Executing thousands of transactions every year through our competitive auction platform or direct bank negotiation, Chatham ensures fair terms and the best structure. We also see that every aspect of the trade is carefully managed, from meeting all reporting requirements and regulatory constraints and proper pre-and-post trade documentation to accounting for and valuing every hedging instrument.

Whether a company is seeking a broad interest rate risk management program or executing their first cap, Chatham’s experience translates into proven strategies, turnkey execution, fair price and terms.