I recently presented a national webinar explaining interest rate swaps, caps and floors. I had the pleasure of presenting with Chrys A. Carey, counsel with Morrison and Foerster in Washington D.C. I have written before on the growing interest in these hedge agreements. Chrys and I and a number of the “attendees” of the webinar agreed that hedge agreements such as interest rate swaps and forward swaps are becoming more a part of commercial real estate transactions.
Chrys and I brought different perspectives to our presentation. While I am involved with the borrower or lender, Chrys has much more knowledge with the regulatory side of hedge providers and traders under the Commodity Exchange Act and the Dodd-Frank Act Regulations. Despite these different perspectives, our overlap in experience brought up some interesting discussions. Some of those are:
- What happens after LIBOR? Most hedge agreements use LIBOR as the standard for interest rates. Luckily, most of the variable interest rate loans that are involved in these transactions also use LIBOR as the standard interest rate. As you may know, LIBOR is set to be discontinued sometime in the next few years. Chrys believes the hedge providers and exchanges will settle on one single benchmark interest rate (such as the Wall Street Journal Prime Rate).