It’s amazing what you miss when you ignore social media for a few days. For example, take this declaration published in a recent article in the Minnesota Star Tribune: “The days when a convicted bank robber could get a job selling gold coins in Minnesota are coming to an end.” What? Over already? I only just learned that this is a thing! But alas, it’s true. It seems that unscrupulous numismatists are about as common as lakes up there in Minnesota, so much so that the state recently passed a law aiming to get the crooks out of the coin business. The new law shakes down around two central thrusts: regulate retail coin dealers, and formalize the transaction relationship. No longer can convicted felons pitch complete sets of American Silver Eagles as a retirement nest egg for Grandma. All dealers…

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Financial Institutions Case Study: Asset Liability Management Our Client: A regional bank with a newly issued brokered CD portfolio. Situation: Our client was asset-sensitive and had just issued 5yr brokered CDs that paid a fixed rate of interest. The client lends to borrowers at a floating rate of interest plus a credit spread, with a nominal floor. The net interest margin (NIM) would benefit from rising rates in the future, but in the short-term NIM was compressed by the long-term funding rate relative to the floored variable rate loan portfolio. Summary: Chatham Financial assisted the client with alternative hedging scenarios to reduce the impact of its relatively high, fixed-rate long-term funding. The client was considering a receive-fixed swap vs. a floating rate with sold floor based on the Prime rate, with the intention to designate the combined swap/floor against its…

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Real Estate Case Study: Debt Ratio Our Client: A public real estate company specializing in asset management in the hospitality sector. Situation: Our client had paid down a significant portion of their floating rate line of credit, leaving them with a fixed/floating rate debt ratio higher than they desired. With hotel assets essentially re-pricing daily, the client wanted to increase their floating rate exposure on the liabilities side to better match the characteristics of their assets. Summary: We discussed entering into a receive-fixed swap to rebalance their fixed-floating mix. A secondary benefit of this strategy was that it allowed them to reduce their current interest expense due to the steepness of the yield curve; the receive fixed swap synthetically transformed a higher fixed rate obligation into a lower floating rate obligation, based on an historically low current LIBOR setting. Because…

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Corporate Case Study: Strategy & Accounting Our Client: A global packaging and manufacturing company with over $7 billion in revenues and a complex capital structure. Situation: The company had recently issued fixed rate financing and was considering converting it to variable via a pay-variable, receive-fixed interest rate swap. Management’s objective was to achieve a certain fixed-floating mix, but was sensitive to the earnings impact that could be generated from the changes in fair value of a pay variable interest rate swap. Summary: The company sought our advice regarding the potential application of fair value hedge accounting on the proposed structure. Our analysis not only highlighted crucial issues that hindered the application of the shortcut method (such as the presence of equity-linked options in the hedged bond), but also showed the earnings impact over the life of the hedging strategy, under…

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It wasn’t the best of times, it quickly became the worst of times. This classic Dickens’ line sets the scene, mutatis mutandis, for a modern tale of two cities that turned to derivatives in time of need. As the old century rolls into the new, political inertia pushes both Athens and Detroit to source more debt and hedge, for better or for worse, with sophisticated derivatives. But when the market turns against them, they find their fate far worse than when they began. Act one of this story opens in Athens in 2001. The Greek government is caught between a rock and a hard place. On the one hand, they have US Dollar and Japanese Yen debt worth around $10 bn euros. On the other hand, Greece has just entered the Eurozone and is required by the Maastricht Treaty to…

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This is part two in a three-part series on the hedging outlook for 2014. Last week, we reviewed current Fed Policy and discussed the impact on hedging programs in 2014. This week, we look at the path of derivatives regulation and the expanding role of global regulation on domestic hedging programs. Part II: Derivatives Regulation. Hedging programs in the U.S. changed monumentally over the past year. A veritable alphabet soup of regulatory requirements was heaped upon market participants, including the following: – ECP: Now all market participants must be Eligible Contract Participants (ECPs), or be qualified so by virtue of certain qualifying owners or guarantors. – LEI: Each hedging party must obtain and maintain a Legal Entity Identifier (LEI). – End-User Exception: All parties to a new transaction who are eligible to do so must now preserve the right to…

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Success with a customer back-to-back swap program Focus more time on: Winning profitable long-term fixed rate deals Growing revenue through product line diversification Building stronger customer relationships Spend less time: Managing complicated compliance processes Adapting to rapidly-changing technology Managing multiple service providers Helping commercial customers make informed financing decisions by offering market-based, flexible and transparent fixed rate solutions. Keys to achieving program success Defined program strategy, institutional alignment and execution Responsive and scalable product infrastructure Efficient risk management and compliance coverage Product delivery at any scale Turn-key derivatives platform from Chatham Chatham offers the most comprehensive back-to-back solution available to community and regional banks. Our platform, RateManager, is designed by bankers for bankers. Service: One team dedicated to helping your bank and your customers succeed Scale: Efficiency regardless of deal volume, from one trade to hundreds of trades Technology: Modern…

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As sequels go, very few movies have been hyped as much as this one. Catching Fire, the latest installment in the Hunger Games franchise, opened this past weekend to throngs of teens, tweens, and giddy parents, scoring $161.1mm in box office receipts for the 4th best domestic movie opening in history, as well as the best November opening weekend ever. Fans couldn’t wait to get a second helping of Peeta Mellark and Katniss Everdeen, giving director Francis Lawrence a bona fide blockbuster going into the Thanksgiving holiday weekend. The latest offering picks up with the stars’ triumphant return to District 12 on their victory tour, having survived a vicious fight-to-the-death tournament, only to realize that they will have to do it all over again. While sequels can sometimes leave a bad taste in your mouth, fans have judged their second…

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Solutions to mitigate interest rate volatility Whether it’s a real estate project or a portfolio of properties, there are inevitable questions about how to protect against changes in interest rates. What should be your fixed vs. floating debt ratio? Is there a lender-required cap or swap? What is your refinance risk? What about fair ISDA terms and derivatives regulation like Dodd-Frank? Chatham Financial has the right answers for real estate investors. We are an independent firm specializing in capital markets and trading expertise. Our services are designed to reduce burdens on resources, save time, and bring transparency to complex transactions. How Chatham helps reduce interest rate risk Tailored risk assessment and analysis: Chatham Financial has helped manage interest rate risk for real estate investors for over 20 years. Each solution involves analyzing the underlying exposure and evaluating hedging alternatives. Whether…

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It looks like a lot of fun to be a world-class golfer or skier.  You get paid millions of dollars to do what costs the rest of us big sums of money, you bask in the constant adulation of thousands of screaming fans – whoops, bad example, for some inexplicable reason golfers need absolute silence while they play – and you visit the finest courses or slopes all over the world.  Best of all, sometimes you can even win a cow. After Luke Donald took the Dunlop Phoenix trophy in Japan late last year, he won a legendary Miyazaki beef cow – each member of this special breed of cattle gets a name, drinks beer, and experiences a sake massage to preserve its outstanding qualities.  When Lindsey Vonn won the Val d’Isère Super G in France, she elected the cow…

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