Posts Tagged ‘Swaps’

PrecisionLender University – Hedging and Interest Rate Swaps

Thursday, March 20th, 2014
Hedging and Interest Rate Swaps
By Chatham’s Bob Newman
March 19, 2014

…”In this session, we’re joined by Bob Newman from Chatham Financial. Bob shares the ins-and-outs of interest rate swaps and the process of implementing a hedging strategy at your bank.”
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Mar. 26: Interest Rate Hedging: Unveiling Market Complexities

Wednesday, March 12th, 2014
Interest Rate Hedging: Unveiling Market Complexities
March 26, 2014, 2 – 3PM ET | Recording Available
If you have not been given a password, please request one by emailing or by contacting your Chatham advisor. A password will be provided within 24 hours or next business day.

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While regulators and participants have made great strides in increasing transparency of derivatives markets, new pricing and execution complexities have emerged in response to the changing market dynamics. This same regulatory environment has brought interest rate risk management into focus for management teams, as hedging policy has become a requirement to claim exemption from certain elements of Dodd-Frank regulation. As such, we’ve prepared an educational series on the current state of interest rate hedging, how companies are thinking about effective policies, and current topics that are shaping hedge accounting treatment and auditor discussions.


Chatham Financial is pleased to present the first installment of a three-part series on interest rate hedging. This initial webinar will focus on execution strategies and the complexities of the current market. While plain vanilla swaps and caps still represent the building blocks of most hedging programs, companies can be thinking more strategically about how they’re employed, and whether they’re priced appropriately in the context of today’s market. In April, we will address the importance of a well-crafted policy and the use of policy as a tool to communicate risk management objectives within your organization. Our final webinar will round out the series with insights into hedge accounting hot topics that are impacting interest rate hedging and valuations.


In this webinar, Chatham will cover the following learning objectives:
- Evaluate various approaches to interest rate risk management, and the application of market fundamentals, financing strategy, and peer group benchmarking
- Understand tools and strategies that are being employed to address interest rate exposure
- Explore pricing complexities that have emerged in the face of market regulation and heightened sensitivity to risk


Amol Dhargalkar leads Chatham’s global risk management practice serving the corporate sector. During his more than 10 years at Chatham, Amol has advised a broad spectrum of public and privately held companies as well as corporate private equity sponsors on the structuring, implementation and accounting of their risk management programs totaling over US 500 billion in hedged notional. Amol graduated from Pennsylvania State University with a BS in Chemical Engineering and a BS in Economics. He also received his MBA from The Wharton School at the University of Pennsylvania where he was a Palmer Scholar.


Amanda Breslin, CFA currently works in Chatham’s Hedge Advisory group advising corporate clients on risk management strategy, analysis, and execution with respect to interest rate, currency exchange rate, and commodities exposures. She has previously consulted on our Public Real Estate Hedge Advisory team, with an emphasis on issues pertaining to REIT structures. Prior to joining Chatham, Amanda was an officer in the Army serving in both Germany and Afghanistan. Amanda received her MBA from The Wharton School at the University of Pennsylvania and a Masters in International Relations from the University of Oklahoma. She also holds a BS in Business Administration from Cal Poly, San Luis Obispo, and has earned the Chartered Financial Analyst (CFA) designation.


If you have not been given a password, please request one by emailing or by contacting your Chatham advisor. A password will be provided within 24 hours or next business day.

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WSJ: CFO Journal: From Taxes to Executive Pay, New Rules for the New Year

Tuesday, December 31st, 2013
CFO Journal: From Taxes to Executive Pay, New Rules for the New Year
By Emily Chasan
December 31, 2013

…“Guidance expected from the Commodity Futures Trading Commission could change the way companies conduct cross-border swaps trading, a common means of offsetting contract risks. The guidance will apply only to international swaps transactions, so companies may choose to make more trades within their own borders “to eliminate the hassle,” said Luke Zubrod, a director at risk advisory firm Chatham Financial.”…
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USD Regulation: Non-financial end users

Monday, December 23rd, 2013
USD Regulation: Non-financial end users
By Yiying Luthra
December 17, 2013
Registration May Be Necessary

In a recent conversation with Luke Zubrod, Director of Risk and Regulatory Advisor at Chatham Financial, Zubrod believes that going into 2014 “the main question for non-financial end users is whether the margin regime apply.”
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IFR: SEFs launch amid controversy

Monday, October 7th, 2013
SEFs launch amid controversy
By Mike Kentz
October 7, 2013
*Registration may be required

“To me, this deadline is more pertinent to the trading platforms themselves than the market participants because the deadline for participants won’t really be until February 2014,” said Luke Zubrod, director in risk and regulatory advisory at Chatham Financial. I think, if anything, it is an opportunity for these companies to test out SEFs for the next 30 days without formally onboarding them.”

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IFR: DERIVATIVES: SEF start depletes swaps liquidity

Monday, October 7th, 2013
DERIVATIVES: SEF start depletes swaps liquidity
By Mike Kentz
October 2, 2013
*Registration may be required

“I think November 1 is a little ambitious,” said Luke Zubrod, a consultant at Chatham Financial. “As with most of the regulatory requirements [stemming from Dodd-Frank], the market is really not ready.”
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Reuters: Swap exchanges launch in threat to Wall Street profits

Wednesday, October 2nd, 2013
Swap exchanges launch in threat to Wall Street profits
By Douwe Miedema
October 02, 2013

…”We’ve been in communication with virtually all of the providers of these platforms,” said Jamie McConnel, who works at Chatham Financial, a firm that advises users of swaps about regulation and technology…”
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Risk: FASB recognises OIS rate as hedge accounting benchmark

Monday, July 29th, 2013
FASB recognises OIS rate as hedge accounting benchmark
By Matt Cameron
July 25, 2013
*Registration may be required

…”It is very much what we wanted to happen,” says Clark Maxwell, chief operating officer at interest rate risk advisory firm Chatham Financial in Pennsylvania. “As a result of OIS discounting of swaps becoming market standard, hedge ineffectiveness has become a huge worry for firms that are only able to discount their hedged items using Libor or US Treasury rates.”
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Are Companies Ready for a New Collateral Challenge?

Tuesday, July 23rd, 2013
Are Companies Ready for a New Collateral Challenge?
By John Hintze
July 16, 2013
*Registration may be required

“It complicates matters, but maybe in a different way than one might think,” Mr. Zubrod said. He added that beyond the operational challenges, including measuring the amount of collateral that must be posted or called, the “most relevant question will be which of my counterparties is actually offering the best deal?”
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LIBOR: The Sweetest Comeback Ever?

Friday, July 19th, 2013

Twinkies Return

Twinkie enthusiasts mourned last November when the iconic snack left shelves, following the Chapter 7 liquidation of Hostess Brands after eighty-two years in operation. Many took to social media to wax nostalgic and bemoan the loss of the fabled vanilla-cream-filled sponge cake, a staple of American snacking indulgence since the Great Depression. The rest raced out to grab the last remaining inventories in big-box and convenience stores – after all, Twinkies were portrayed in Die Hard and Zombieland as resilient enough to last one thousand years and sustain humanity despite a zombie infestation, respectively.

What brought Hostess Brands to the point of liquidation? As noted in the Wall Street Journal, the company’s far-flung manufacturing operations included 11 factories, each of which was operating at about half-capacity; meanwhile, its thousands of drivers traveled directly to each individual convenience store to make deliveries. Hostess also had around $1.3 billion in debt to service, along with a high proportionate union wage and pension benefit expense relative to competitors. While the American consumer became more health-conscious over time, the Twinkies recipe – complete with goodies like high fructose corn syrup, partially hydrogenated oils, polysorbate 60, and yellow #5 – held constant for decades. All this led to a grim November, as factories closed their doors, workers lost their jobs, and the famous golden snack disappeared from shelves across the country.

None of the employees under the new organizational structure will have union representation, greatly altering the compensation and pension expense picture. And CEO Dean Metropoulos has even hinted at experiments with gluten-free, whole grain, or stevia-sweetened alternative snacks. While it’s too soon to tell if the $410 million paid to purchase Hostess Brands will be an effective investment, 441 thousand Facebook fans (at last count) couldn’t wait for stores to open at midnight today.

But the Twinkie isn’t the only thing trying to make a sweet comeback these days. LIBOR, the reference rate on hundreds of trillions of dollars in loans and swaps, spent last year going through its own public demolition, after it came out that as many as twenty large banks were named in lawsuits or investigations of rate rigging. Acting within this alleged cartel, some banks acted duplicitously to misstate LIBOR fixings (lower or higher) in order to make unmerited profits on specific trades, and at other times (only lower) to misrepresent their true borrowing costs during the credit crisis. The pending litigation over inaccurate LIBOR quotes could cost the industry tens of billions, which led one bank CEO to refer to this in The Economist as “the banking industry’s tobacco moment.”

The very future of LIBOR itself became so uncertain that the British government asked Martin Wheatley, then managing director of the Financial Services Authority, to investigate its prospects. Wheatley found that LIBOR was “broken and need[ed] a complete overhaul,” but called for comprehensive reform rather than completely scuttling the benchmark rate. The Wheatley Report noted “no noticeable decline” in LIBOR’s usage, and recommended several key solutions to return credibility to the LIBOR indices. A new administrator would need to take responsibility for LIBOR, ensuring transparency and fair access to the benchmark rate. LIBOR submitters would need to follow a specific code of conduct, commit to transaction record keeping and subsequent publication, and submit to a regular audit. And for any currencies and tenors with insufficient trade data, LIBOR would cease to compile and publish rates.

Then came the news last Tuesday that NYSE Euronext was buying LIBOR for the paltry sum of £1, even though the Wall Street Journal reports that the index generates about £2 million in revenue per year. Now that an independent company runs the benchmark, rather than a group of banks, the clear conflict between accurate rate-setting and bank profiteering will presumably be obviated. Additionally, as the owner of LIBOR, NYSE Euronext will have reasons to make the rate-setting process as credible as possible to prevent competitive entrants. They won’t be changing the name anytime soon, or even the formula for calculation, but intend to adapt the formula over time in accord with the Wheatley report’s recommendations. This may spell a resurgent LIBOR, even if existing loans continue to work under the old benchmark compilation rules while new financings adopt new compilation rules. But only time will tell if for all who love the LIBOR benchmark, July 9, 2013 stands out as the beginning of one of the sweetest comebacks in the history of ever.

Beyond LIBOR reform, there’s so much going on in the markets these days – check out our Market Update Webinar as we discuss the state of the economy, the latest comments from the Fed, key financial data, fixed versus floating-rate debt, and recent regulatory changes. And feel free to bring your own Twinkies!