Interest Rate Risk Management
Our Approach
People’s United Bank provides Interest Rate hedging products providing clients flexibility managing their interest rate risk. Hedging products help clients expand financing options, diversify interest rate exposure, and customize amortizations to match cash flow projections.
Interest Rate Swap
An interest rate swap is an agreement between two parties to exchange interest payments where one party agrees to pay a variable rate and the other agrees to pay fixed. When entered into with a variable rate loan the two transactions synthetically fix your borrowing costs without changing underlying loan structure.
Forward Starting Swap
Client has the ability to enter into an interest rate swap today to become effective in the future. Client “locks in” an interest rate today for a future loan.
Interest Rate Swaption
Client purchases an ‘insurance policy’ against floating rate index moving above a certain level or strike rate. Maximum interest cost is capped at strike rate plus loan credit spread. Requires an upfront fee, but is always an asset to purchaser.
Interest Rate Cap
Client purchases an ‘insurance policy’ against floating rate index moving above a certain level or strike rate. Maximum interest cost is capped at strike rate plus loan credit spread. Requires an upfront fee, but is always an asset to purchaser.
Interest Rate Collar
Client purchases an interest rate cap and sells People’s United an interest rate floor – creating a “collar.” Borrower floats between interest rate cap and floor strike rates. If index moves above cap strike rate People’s United pays client and if moves below floor strike rate client pays People’s United.
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