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Interest Rate Hedges in Real Estate Finance: Placing Swaps, Caps, and Collars on Floating Rate Transactions

Pricing and Trade Confirmations, the ISDA Master Agreement, Counterparties, Current Regulation of Derivatives

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Thursday, December 3, 2020

Recorded event now available

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This CLE course will describe hedging transactions and ways to limit the parties' exposure to changes in rates in floating-rate transactions. The panel will explain the role of the hedge counterparty and discuss critical aspects of hedge documentation.


Floating-rate commercial mortgage loans present an interest rate risk for borrowers and lenders. Real estate projects typically generate relatively steady cash flow. Yet, the parties to the loan must have confidence that the cash flow will be sufficient to pay debt service regardless of increases in interest rates.

Many market participants employ hedges to limit exposure to interest rate risk, usually with rate caps, interest rate swaps, and collars. Real estate counsel must understand how these hedge transactions work and what financial risks they entail.

Listen as our authoritative panel discusses each of these derivatives and how they are priced and memorialized. They will address the required debt ratings for the swap counterparties and cap providers, the issues that arise when an institution's rating is downgraded, and the additional regulations imposed on derivatives under Dodd-Frank. Finally, they will summarize the real estate attorney's role in the hedge transaction.



  1. Overview of interest rate hedges
    1. Purpose: protection against changes in floating rate during loan term
    2. Caps, swaps, and collars
    3. Pricing and auctions
    4. Role of counterparty
    5. Need for collateral
  2. Interest rate hedge documentation
    1. Hedge term sheet/bid sheet
    2. Recorded phone call during which trade is executed
    3. Trade ticket
    4. Hedge confirmation
    5. ISDA Master Agreement
    6. Schedule to Master Agreement
    7. Impact of LIBOR transition
  3. Impact of Dodd-Frank regulations: eligible contract participant qualifications
  4. Role of borrower's and lender's counsel


The panel will review these and other relevant issues:

  • What kind of interest hedge is appropriate for your transaction?
  • What are costs and risks associated with each type of hedge?
  • How are hedge transactions bid out, executed, and documented?
  • How are swap counterparties and cap providers currently regulated, and what are the qualification, clearing, and margin requirements for hedging transactions?
  • What is the role of real estate counsel in the hedge transaction?


Carey, Chrys
Chrys A. Carey

Of Counsel
Morrison & Foerster

Mr. Carey represents clients in a wide variety of derivatives transactions and advises them on derivatives regulatory...  |  Read More

Marines, Aaron
Aaron S. Marines

Russell Krafft & Gruber

Mr. Marines has served 16 years in private practice, focused on real estate and business matters. Residential and...  |  Read More

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