Swap Advisory for Corporate Borrowers and Middle Market Companies
Your Bank Loan Requires an Interest Rate Swap. Here’s What That Means and Why You Need Your Own Advisor.
If you’re a company borrowing money (whether it’s a term loan, a credit facility, or project financing), your bank may require you to hedge your interest rate exposure. This usually means entering into an interest rate swap that converts your floating-rate loan into a synthetic fixed rate.
For many corporate borrowers, especially first-time hedgers, the swap process feels opaque. The bank presents it as routine, hands you a stack of legal documents, quotes you a rate, and asks you to sign. But there’s more going on, and having an independent advisor can save you real money and protect you from hidden risks.
What the Bank Isn’t Telling You
When your bank provides an interest rate swap, they build a profit margin into the rate they quote. This margin is not disclosed, and it varies from bank to bank and deal to deal. On a typical middle-market swap, the margin might be anywhere from a handful of basis points to a much larger amount. On a $20 million, seven-year swap, every basis point of improvement is worth roughly $14,000 over the life of the swap.
The ISDA Agreement Is Not “Standard”
Banks will often tell borrowers that the ISDA Master Agreement is a standard document. This is not accurate. Cross-default provisions can cause your swap to terminate if you default on an unrelated obligation. Additional termination events can give the bank the right to terminate under circumstances that have nothing to do with your creditworthiness. And early termination may require a large breakage payment. An experienced advisor knows which provisions to negotiate.
Who Needs an Independent Swap Advisor?
Independent advice is strongly recommended if: you’ve never done a swap before and don’t have in-house treasury expertise; your loan is $10 million or more and the swap will last three or more years; your bank is pressuring you to lock quickly; or you’re not sure whether a swap, cap, or other structure is best. For companies without a dedicated treasury function, an independent advisor essentially acts as your outsourced treasury team for the hedge.
About Evercrest Advisors
Evercrest provides independent hedging and bond advisory services to real estate owners, developers, and asset managers, tax-exempt and municipal issuers, nonprofit organizations, and corporate borrowers. We work with borrowers of all sizes. If your bank has told you that you need to hedge, talk to us first.
Email: info@evercrestadvisors.com | Phone: 212-837-8900