White Papers
In-depth analysis and educational resources covering interest rate hedging, defeasance, prepayment strategies, and market dynamics for commercial real estate borrowers.
Fund Level Hedging: Selling Back Caps and Floors
When discussing hedging options, collars and corridors are often common topics of discussion.
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.
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.
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.
Can My Cap Provider Afford to Pay Me?
A breakdown of the risk borrowers face on their interest rate hedges
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?
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.”
Where To Send Your Cap Payouts
This has left many borrowers, and some lenders, asking the question: where do the cap payouts go?
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).
Cap Provider Rating Requirements – Update
Cap Provider Rating Requirements - Update | 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.
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.