How to model floating rate debt?
Does anyone here have a good resource to model floating rate debt? Trying to learn but I can’t find anything great out there
Update: sounds like you’d just pull the sofr curve add a spread and index match the dates. Thanks everyone
You model it at today's rate or today's rate +X.XX% buffer depending on how your firm typically approaches it. We always put a spread in there. There's a bit of an art to making sure you have enough buffer to not fuck yourself and making sure you don't have so much buffer that it craters the returns.
If you want to get fancy, you can always create a table that shows how interest reserve is impacted by 25 bp increases and decreases, but these aren't always accurate either as when that rate increase or decrease happens can be as important as the actual increase or decrease - especially in development.
Basically, yes that is industry standard
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