Interest Rate Risk for Corporates

Interest Rate Risk

To establish an effective interest rate risk management policy for the company, you should identify and quantify the interest rate risk in a dynamic and correct way. We support corporates to achieve this.

As a result of effective interest rate risk management, the activities will be aligned with both the nature of the activities of the company as well as with its capital structure. The key objective for corporates in interest rate risk management is to protect the company against any adverse impact of interest rate movements. Interest rates affect companies in different areas:

  • Interest expenses on debt and interest income on cash. The risk in changes of credit spreads and/or margins should also be taken into account.
  • Market values of debt or other financial liabilities. A decrease in interest rates results in a rise in the value of liabilities, such as fixed debt, interest rate swaps and pensions commitments, but also vice versa.

A relevant measure of interest rate risk is the interest cover ratio, i.e. Ebitda/interest costs, an indicator of level capability of the company to fulfill their financing obligations.

We can assist in all areas of interest rate risk management, i.e. identification of the interest rate risk, measurement, review and design policy, procedures and processes for managing the risk and using hedging instruments (derivatives) such as interest rate swaps, cross currency swaps, interest rate caps, collars and other options to reduce the interest rate risk. Valuation and modeling of interest rate instruments is performed by the Zanders Valuation Desk. We supported many corporates in the execution process of derivatives to manage their interest rate risk in a prudent and effective way.

Interested in Interest Rate Risk?

Lisette Overmars
Get in touch with Lisette Overmars for more information about Interest Rate Risk.