UK REIT: Pre-hedging loan breakage costs
Hedging and Capital Markets
Real Estate | London
A case study of how Chatham advised a UK REIT how to optimise its hedging strategy, when substituting an existing loan.
A UK REIT was looking to substitute and dispose an existing fixed rate loan, which would have led to partial repayment of the loan.
- Chatham was appointed to manage the partial termination process and ensure transparent pricing of the breakage costs.
- The market risk of a further downward movement in interest rates had to be mitigated.
- The pre-hedging strategy had to limit the potential increase of the loan’s breakage costs between exchange and completion.
- After discussing the business plan with the company, we determined the key objectives and advised on the most suitable pre-hedging strategy using interest rate swaptions.
- We helped the company with sourcing a competitive hedge counterparty to implement the hedging strategy within the company’s deadline.
- We advised on the methodology applied by the lender to determine the breakage costs of the fixed rate loan.
- We conducted continuous benchmarking with the lender and hedge counterparty to ensure fairness and transparency.
- The client received transparent and fair loan breakage costs.
- The market risk of moving interest rates was removed.
- A highly effective hedging strategy in line with the company’s objectives.
- Significant time and resources were saved, due to an efficiently run process.
Contact the author
Please complete the form below to find out more about optimal hedging strategies for UK REITs.
This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.