Managing Rate Caps and Hedges in a Changing Interest Rate Environment

It’s 5:00 PM on Monday, May 23, 2022. Do you know how interest is calculated on your loan? As the remaining settings for interest and swap payments based on the London Interbank Offered Rate (LIBOR) cease in June 2023, and as markets continue to get comfortable with the Secured Overnight Financing Rate (SOFR) as a LIBOR replacement, uncertainty insofar as interest and hedge payments are concerned persists. In this episode, partners Jay Wardlaw, Daniel Evans, and Gordon Peery raise questions and make recommendations for determining whether caps and swaps may become unmoored from the loans which they were designed to hedge – and the steps and costs associated with amending CRE hedge documentation. “Springing caps” and other solutions are also presented in the current rising interest rate environment.