Why do companies need an interest rate hedging strategy?
Most companies have a good understanding of their financing needs. But once they have the capital structure in place, whether it is a term loan or revolving credit facility or a combination of both, they need to think about how they manage their interest rate exposure over the life of the loan. Since senior debt is funded largely on a variable rate basis, the tendency is usually to focus on the current variable borrowing rate, not on how these rates are anticipated to move over time. This can expose a company’s balance sheet to undue risk, especially if debt market conditions become volatile. Moving from a floating to a fixed interest rate enables a business to take some of the variability out of the equation because interest expense then effectively becomes an anticipated fixed line item for budgeting purposes. What solutions are available? Interest rate protection strategies are extremely flexible and can be customized specifically for a company’s debt profile and tailored to its ris