Pretty relevant question here given the current interest rate environment: let’s say a company had $100M of variable debt (i.e. First Lien Term Loan) and issued it in 2018 when base rates were relatively low say ~1-2%. the company decided to fully hedge it for 7 years with an interest rate swap at 1.5% fixed base rate.
fast forward to today in 2023, company wants to issue new debt to replace it given maturity is creeping up. new issuance of $100M First Lien Term Loan to replace the existing. but given current base rates of 5%, interest expense would be much higher right? or can the interest rate swap be applied to the new $100M issuance at least for the remaining 2 years of the hedge instrument?
does it make a difference if its an incremental 1L to take out a 2L of same debt quantum that was hedged?
who is going to be on the other side of that trade
Hedges arnt tied to the debt in your case, you just cash out the hedge or you can keep it.
You can and have seen people monetize these. No different than closing out any other derivatives trade
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