Interest Rate Risk

In-Loan Hedging Solutions

for Direct Lenders

HedgeNAV enables Private Credit providers to offer basic hedging solutions directly to their borrowers. In each instance the credit exposure of any derivatives employed is managed such that no security interest is granted to the hedging counterparty.

Flexible and Simple

only basic products are needed

Private Credit has grown substantially in recent years, in part due to its flexibility and simplicity compared to bank debt. There are several straightforward means by which a non-bank lender can facilitate an interest rate hedging transaction for its borrower. There is no "correct" route, but each has different economic and administrative implications for the lender to consider.

Dialing Down Risk

is the heart of the matter

HedgeNAV and its partners provide partly- or fully-outsourced interest rate hedging capabilities to a wide range of non-bank lenders. Our tailored solutions can materially decrease a key risk within loan portfolios while radically simplifying the hedging process for borrowers.

What type of hedge is most appropriate?

An interest rate cap is the simplest hedge product for any variable-rate lender to offer.
- The strike rate of the cap can be as low as the floor rate of the particular loan or as high as both parties agree.
- The term of the cap can be as long as the remaining loan term, or as short as both parties agree.
- The hedge ratio (per cent of loan amount hedged) can 100% or lower if both parties agree.
Each of these elements will affect the cap's cost (or premium) and should be carefully weighted.

How is the extra capital for the hedge funded?

HedgeNAV's solutions avoid the two extremes for financing hedging costs:
- Borrower paying up-fron cash (equity); and
- Lender adding hedging costs to the main loan amount.
Instead, HedgeNAV spreads hedging costs evenly over the term of the hedge (not the loan.)
This can be seen as a small, fully-amortizing fixed-rate loan tranche during the hedge term.
Unless the main loan is accelerated, it is not considered Financial Indebtedness nor does it affect loan covenants.
If a Revolving Credit Facility bank is present, HedgeNAV's solutions augment credit capacity as appropritate.

HedgeNAV's full-service interest rate solution for Private Credit effectively adds Capped-Rate Loans to a lender's product suite.