OUR THOUGHTS ON:

Increasing Use of Interest Rate Swaps by Government

Government

By Joseph Patrick

Government entities are increasing their use of interest rate swaps and incorporating swap products into overall debt and debt management strategies. Given the consistently low interest rate environment, interest rate swaps provide an alternative for government issuers to lower borrowing costs and decrease interest rate risk.

Interest rate swaps are primarily used as an internal cash management tool, and the issuer’s ability to manage the risks associated with the swap is critical to ensuring success of employing interest rate swaps in a debt management strategy. Some of the common aspects to consider when evaluating whether an interest rate swap makes sense are as follows:

• Size of the transaction
• The nature of the transaction
• Basis for calculating interest
• Size and sophistication level of the issuer
• Potential termination payments and materiality of potential loss on termination
• Credit quality of the counterparty
• Duration of the swap agreement
• Events of default or termination
• Collateral requirements

To learn more about evaluating an interest rate swap, contact Joseph Patrick, or any shareholder at Schneider Downs. We’d be happy to help.

© 2012 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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