Do I Need an Independent Swap Advisor?

Your Bank Just Told You That You Need to Enter into an Interest Rate Swap. Now What?

If you’re a borrower (whether you’re a municipality, a nonprofit, a real estate developer, or a corporation) and your lender has told you that your loan requires an interest rate swap or cap, you’re probably asking: What exactly is this product? Is my bank giving me a fair deal? Do I need someone on my side? The short answer: yes, in most cases, you should strongly consider hiring an independent swap advisor.

Your Bank Is Not Your Advisor

When your bank requires you to hedge and then offers to provide that hedge, they are acting as a dealer, not as your advisor. They are selling you a financial product and making a profit. The pricing they quote includes a built-in margin that is not disclosed. Without independent advice, you have no way of knowing whether the price is fair, the structure makes sense, or the documentation protects your interests.

What Does an Independent Swap Advisor Actually Do?

An independent advisor works exclusively for you. They evaluate your hedging options (swap, cap, collar, or some combination). They benchmark pricing against current market rates. They review and negotiate the ISDA documentation. And they manage the execution process to ensure you lock at the right time and price.

How Much Does a Swap Advisor Cost?

Advisory fees vary depending on size and complexity, but they are almost always a small fraction of the value an advisor provides. In many cases, the pricing improvement alone more than covers the advisory fee. Think of it this way: would you sign a million-dollar contract without having your own attorney review it? An interest rate swap is a binding financial contract that can last five, ten, or twenty years.

When Is an Advisor Especially Important?

Independent advice is particularly critical for first-time hedgers, large or long-dated transactions, tax-exempt borrowers subject to Dodd-Frank requirements, construction loans with complex hedge structures, and any situation where the lender is pressuring you to lock quickly.

About Evercrest Advisors

Evercrest is an independent advisory firm providing hedging solutions to borrowers nationwide. If you’re facing a hedging decision and want independent advice, we’d welcome the opportunity to talk.

Email: info@evercrestadvisors.com | Phone: 212-837-8900