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In-depth analysis and educational resources covering interest rate hedging, defeasance, prepayment strategies, and market dynamics for commercial real estate borrowers.
Fund Level Hedging: Forward Starting Swaps
A forward starting swap is when a borrower locks a rate today for a hedge that begins in the future.
Fund Level Hedging: The Buy/Sell Swap
Most lenders that require a hedge can’t actually provide one. When borrowing floating from a debt fund, Agency, or other non-bank lender, if there’s a hedge, it’s almost always going to be a cap procured from a third party bank. What if you’d prefer a swap though?
Fund Level Hedging Series – Deferred Premium Caps
Institutional investors are increasingly looking for ways to be more thoughtful about how they protect their downside. Rather than treating every cap as a one-off expense at the asset level, many groups are rethinking how they hedge. One of the most overlooked (but valuable) opportunities is leveraging a fund level entity, whether for the benefit of a single asset or the entire fund.
Deferred Premium Caps
Given the constant chatter of potential hikes, many groups are reevaluating their positions and considering additional hedges. If you’re in that camp, a deferred premium cap is an alternative to consider, as it puts a ceiling on your rate without the need to call capital or use cash reserves.
Declining Flat % Swaps
Borrowers comparing term sheets often come across two options with similar terms – a balance sheet fixed rate and bank floater with a swap.
Cancellable Swaps 201
Now, let’s look at a less common structure – a cancellable swap where the borrower sells the right to terminate in the future.
Cancellable Swaps 101
Banks are back, rates are up, many hold periods are longer, and the volatility continues. A common topic of discussion when our clients are evaluating bank swaps is “What term should I go with?”
Get Rid Of Your Escrows - Buy Through Maturity
Purchase a rate cap through maturity—preserve liquidity, reduce monthly escrows, and even recoup excess reserves.
Swap and Save 0.20% or More
Swaps have some benefits that are often overlooked.
Lower Your Swap Rate Today - Blend and Extend
Learn how to lower your swap rate today through the blend and extend method!
Quarterly Interest Rate Webinar
Register to attend Pensford's quarterly markets and interest rate updates!
Freddie Defeasance vs Yield Maintenance
Want to reduce your future prepayment penalty? Read this.
Transitioning Swaps to SOFR
If you’re a borrower with floating bank debt that’s swapped, you may be wondering what happens when you transition to SOFR.
Defeasance Fees
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities and is governed by REMIC regulations.
Parties to a Defeasance and Their Roles
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities and is governed by REMIC regulations.
LIBOR Transition – What Happens to Your Hedge by June 2023?
If you have outstanding LIBOR based hedges, you might have started receiving reminders from your hedge providers prompting some sort of action.
What Is a REMIC and How Does It Play Into My Defeasance?
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities and is governed by REMIC regulations.
Can My Cap Provider Afford to Pay Me?
A breakdown of the risk borrowers face on their interest rate hedges
How to Easily Calculate Agency Yield Maintenance
If you’re currently weighing sale/refi options or are looking at an acquisition and would like to run a prepayment penalty, we have calculators that can help.
Paid Off the Loan But What About the Cap?
We frequently receive inquiries from clients who wonder what their options are when they pay off their loan but still have a cap outstanding. So what do you do?
The Pensford Defeasance Difference
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities, typically US Treasury or Agencys.
The Defeasance Process – Required Items
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities, typically US Treasury or Agencys.
Defeasance Kick Off – Delivering the Notice
Defeasance is a process where the real estate securing a piece of debt is swapped out for a portfolio of securities, typically US Treasury or Agencys.
What Is a Long Form Confirmation?
In most cap transactions, an ISDA Master Agreement or Schedule isn’t executed. Instead, most third-party caps are governed by a “long form confirmation.”
Defeasance vs Yield Maintenance: Differences Explained
From a monetary standpoint, defeasance and yield maintenance (YM) feel similar, but they have some core differences. We've summarized them in three points.
Where To Send Your Cap Payouts
This has left many borrowers, and some lenders, asking the question: where do the cap payouts go?
Two Day Defeasance Closing Process
Two Day Defeasance Closing Process
What About Collars?
A collar is where a borrower buys a cap at a certain strike and sells back a floor to the bank helping offset the cost of the cap.
Term SOFR vs Daily Simple SOFR - What’s the Difference?
What's the difference between SOFR & term SOFR? Learn more about about the technical differences between term SOFR vs Daily Simple SOFR here.
LIBOR vs SOFR
The financial industry aimed to create an alternative to LIBOR so ARRC announced the selected rate in 2017, the Secured Overnight Financing Rate (SOFR).
Fixed Below Floating – No Brainer?
Fixed Below Floating – No Brainer?
Optimizing Debt Strategies
Optimizing Debt Strategies | Pensford, LLC
Cap Provider Rating Requirements – Update
Cap Provider Rating Requirements - Update | Pensford, LLC
Swaps 201 – Buying Out the Floor
Swaps 201 - Buying Out the Floor | Pensford, LLC
Interest Rate Caps 101
What is an interest rate cap in real estate? A cap is an insurance contract on floating rates where if a strike is exceeded, provider reimburses the difference.
Time Value Impact on Cap Pricing
The cost of a cap in today’s environment is driven more by time than by the strike. Even if the strike is above the peak LIBOR reset over the full term.
Rating Requirement Impact on Caps
On required caps, the Lender requires a Collateral Assignment to ensure cap payments are made to them. These requirements tend to be nuanced and risky.
The Hidden Driver of Cap Cost: VOLATILITY
If the index rate exceeds the strike rate when a caplet expires, the cap seller will pay the interest expense over the strike rate to the buyer.
Cap Timeline
The Pensford Cap Timeline is an overview of the cap process. Much of this will be dependent upon the responsiveness of the borrower and lender.
Agency SOFR Caps
With multifamily borrowers beginning to close on their first SOFR based loans, we wanted to provide an update with where things stood on Agency SOFR Caps.
Swaps 101
A swap is a contract to exchange interest rate payments on an agreed-upon notional schedule. The most common swap is floating to fixed swap, usually LIBOR.
Bank Swaps vs CMBS Swaps
Each swap can be structured independently of financing to allow flexibility for things like notional amount, term, amortization, and prepayment flexibility.
Swap Invoice Explanation
Swap Invoice Explained: Swap invoices frequently cause confusion as they are billed separately from the loan. This resource clarifies the swaps confusion.
Regional Bank Swaps
Regional Bank Swaps
Forbearance and Hedges
Forbearance and Hedges
Collars 101
Sold as an alternative to caps, collars are appealing because they allow a borrower to obtain a ceiling on a floating rate without the upfront cost of a cap
Swaptions 101 - A Resource For Commercial Real Estate Borrowers
Swaptions are options on swap rates. Like caps in real estate, they have an upfront premium and never further obligate the buyer to additional termination amounts.
Prevent Prepayment Penalties From Increasing with Swaptions
There is a way to hedge against falling rates, and you do that with swaptions. Simply put, a swaption is a call option on swap rates.
SOFR Transition FAQs, Timeline and Events
In October 2020, ISDA released a Supplement which revises the 2006 Definitions to include robust fallback language in preparation for the transition to SOFR.
Existing LIBOR Cap or Swap? What to know about the 2020 LIBOR Fallback Protocol
If you have an existing LIBOR cap/swap, you may have received an email about Adherence to the 2020 IBOR Fallback Protocol. These emails include a guide on how to adhere.
ISDA SOFR - The Fallback For LIBOR Caps and Swaps
ISDA will be using SOFR + spread adjustment as the LIBOR replacement for contracts entered on or after 1/25/2021.
SOFR Rates For Dummies - A Helpful Overview in Layman's Terms
There are various SOFR rates/calculation methodologies, in this resource we touch on the differences between the various indices to help shed some light.
What Is BSBY (Bloomberg’s Short-Term Bank Yield) Index?
What is BSBY? Bloomberg’s Short-Term Bank Yield Index (BSBY) is an index calculated and published by Bloomberg as an alternative to SOFR.
ISDA Negotiation - Why It's Important
The ISDA negotiation and Master Agreement covers payment obligations, representations, covenants, default events, early terminations, and transfer.