In this week’s installment, Part III and our final installment of our series, we look at the impact hedge accounting rules and changes can have on your hedging program in 2014. In Part II, we looked derivatives regulation on your hedging program, and in Part I,  Fed Policy and its impact on hedging programs. Part III: Hedge Accounting. Several key developments in the world of hedge accounting last year could impact your derivatives and hedging programs this year. First, the FASB approved in July 2013 the use of the Fed Funds Effective Rate (or OIS) as a benchmark interest rate, which along with LIBOR and Treasury rates can now receive favorable hedge accounting treatment under many routine hedging strategies. This is great news for entities with floating-rate assets or liabilities indexed to the Fed Funds Effective Rate, as it simplifies their ability to hedge their…

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Oscar Wilde would have loved the Twitter genre; he was a veritable epigram machine. Even though everything he wrote is now at least a century old, it hasn’t lost relevance or zing. Think of how pertinent Wilde’s statements still are on topics as diverse as Narcissism: “To love oneself is the beginning of a lifelong romance.” Celebrity: “There is only one thing in the world worse than being talked about, and that is not   being talked about.” Identity: “Be yourself; everyone else is already taken.” Transcendence: “We are all in the gutter, but some of us are looking at the stars.” Modern conveniences: “We live in an age when unnecessary things are our only necessities.” For us, though, the best Oscar Wilde quote is from The Picture of Dorian Gray: “Nowadays people know the price of everything and the…

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Experts in CRE debt and derivatives valuation Determining the accurate, fair value of commercial real estate loan debt or applied derivative instruments may seem simple on the surface. Nonetheless, improper measurements can lead to significant, long-term financial loss over the course of the loan or derivative. It may also prompt questions from investors, auditors, and regulators. How Chatham’s valuation services help real estate clients Independent third-party expertise: Chatham has been working with real estate companies for over 20 years, using proprietary models and independently gathered data to value debt and derivatives. And our advisors are in the markets every day, continually building market knowledge, monitoring trends, and adjusting for changing standards. From caps, swaps, and FX forwards, through to more exotic derivatives, Chatham offers a robust platform that provides clients with real-time values via our secure website. Our best-in-class valuation…

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The right hedge accounting can reduce volatility in your financials As a real estate company filing with the SEC or providing transparency to investors, you are responsible for financial reporting. If you’re hedging you have sensitivity to the resulting volatility in earnings, and you can benefit from hedge accounting that navigates standards from the FASB and IAS and aligns under US GAAP and IFRS. Chatham Financial pioneered the gold standard in hedge accounting for real estate companies when derivatives were first introduced. Our solutions are why most REITs applying hedge accounting use Chatham as their hedge accounting partner. How Chatham Hedge Accounting helps real estate companies We align optimal economic hedging and favorable hedge accounting: Our expertise in both structuring transactions and interpreting the nuances of the hedge accounting standards enable us to optimize accounting results. With a primary objective…

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A strong hedge accounting program can reduce or eliminate earnings volatility Investors who wish to avoid surprise risks or auditor scrutiny can depend on Chatham’s expertise in hedge accounting. Whether you have SEC filing obligations, need to provide transparency to investors, or wish to establish a consistent earnings track record, we can successfully navigate the complexities of ASC 815 or IAS 39, which are so critical. By timing the earnings recognition of the derivative with that of the hedged asset, liability, or forecasted transaction, we can significantly reduce or eliminate the earnings volatility that would otherwise be recognized in financial statements. Hedge Accounting solutions for private equity sponsors and their portfolio companies Chatham’s comprehensive hedge accounting solutions are customized for each client to reduce complexity and administrative burdens. We provide technical consulting, analysis, technology, education, and key hedge-accounting deliverables on…

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Hedge Accounting for Financial Institutions Financial institutions that use derivatives to manage risk or offer derivatives to their clients are mindful of the associated regulatory and financial reporting involved. They expect reported results to accurately reflect the underlying economics of derivative and hedging activities. Effectively aligning the bank’s economics and reported results, while minimizing ineffectiveness can be challenging, especially since ASC 815 is nuanced and difficult to apply properly. It is critical for companies to successfully navigate these accounting complexities in order to avoid earnings surprises as well as scrutiny from external investors, auditors, and regulators. Benefits of Chatham’s Hedge Accounting Solutions Chatham has the expertise to help you navigate the complexities of ASC 815. We have assisted hundreds of companies with tens of thousands of such transactions. Our hedge accounting solutions are customized to your needs and reduce the…

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FAS 157 and Non-performance Risk for Derivative Financial Instruments: More Than Meets the Eye July 2009 Arguably no other accounting standard has received so much attention in recent times as Statement of Financial Accounting Standards No. 157 ‘Fair Value Measurements’ (ASC 820, and formerly FAS 157). This article explores the application of ASC 820 on derivatives financial instruments, and showcases the importance of consider the nature of such financial instruments when calculating adjustments for credit risk. Download Complete Article

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