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Clifford Chance

Clifford Chance

Briefings

Hedging in real estate finance transactions – from caps to swaps

2 October 2023

For a number of years, borrowers in the real estate finance market have predominantly hedged their loans using interest rate caps with the premium being paid in full upon execution of the finance documents. The rising cost of this approach has led to borrowers seeking to use interest rate swaps instead of (or alongside) caps as their preferred hedging instrument.

This note considers the issues raised and the structuring implications of this hedging strategy, for both borrowers and their lenders.

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