6: Loan Hedging Requirements

Loan Hedging Requirements: How to Best Deal with Them: Often a bank will include a “hedging requirement” in a variable LIBOR rate-based loan offer, mandating that the borrower enter into an interest rate swap upon closing the loan. It is important to understand the motivation and incentives of the bank regarding such a hedging requirement for a loan. This paper will “pull back the curtain” on such a requirement and discuss a borrower’s best approach to satisfying/negotiating such a requirement.