“There is a complication,” says Conly. “It is one thing if the hedge is for a standard sale and purchase agreement-based asset that is changing hands: it is an existing stabilised asset and would be a perfect candidate for a deal-contingent hedge.
“There are accounting problems that come up on the deal-contingent aspect of the trade,” says Conly’s colleague Dan Gentzel, managing director for accounting advisory.
“Recently implemented margin rules and upcoming clearing mandates that affect counterparties in the US and Europe will require in-depth analysis to make sure a trade is compliant,” says Norland. “It will mean a greater compliance burden and heavier lift up front, but won’t stop deal-contingent hedging.”