INTEREST RATE RISK > Strategy > Timing > Transaction > Monitoring
There are basically three reasons for organisations to hedge their interest rate risk:
- A hedging obligation: usually on the basis of a recent financing agreement, or company/shareholder policy.
- Prudent risk management: the organisation wants to limit risks and potential cost increases, whilst safeguarding profit margins and continuity.
- A market opportunity: for example, the currently 'inverted' yield curve (long-term rates are lower than short-term rates), allows companies to immediately reduce interest expenses.
A suitable interest rate hedge is always tailor-made and should align both with your current and future/expected financing portfolio. First of all, ICC will give you a clear picture of your interest rate sensitivity under different interest rate scenarios (inflation, deflation, stagflation, etc.). Which maturity do you want to hedge? Which interest rate levels are manageable? At what hedge ratio do you feel comfortable? Which instruments are suitable? What is the optimal maturity based on the yield curve?
We are happy to discuss the various hedging strategies in more detail with you, so you can make the right choice. Of course, we consider specific business circumstances such as: premature/additional amortisation, new investments, a 'buy-and-build' strategy, existing interest rate derivatives, possible shareholder exit, possible divestitures, and so on.
