28th Mar 2014 12:42
LONDON (Alliance News) - McKay Securities PLC Friday said it has negotiated the early cancellation of an interest rate hedging swap, in a move that will save the real-estate investment trust about GBP900,000 a year at current rates.
McKay Securities shares were Friday quoted at 213.58 pence, up 1.7%.
The REIT, which invests primarily in South East and London office and industrial property, said it cost GBP5.7 million to cancel the swap.
The interest rate hedging instrument had a notional value of GBP25.0 million.
McKay said it was able to cancel the swap after reducing its debt in the wake of its GBP86.7 million capital raising last month.
"Having received notice from the counterparty bank that a credit break would be exercised in 2016, the group has taken the opportunity to reduce its hedging instruments as of March 26 to swaps with a notional value of GBP80.0 million," McKay Securities said in a statement.
Hedging interest rates with swaps can be an attractive proposition to business that are at risk of fluctuating rates. Using swaps can mitigate the effects of a change in rates.
But contracts with longer maturities increase risks of default of a counterparty, while also exposing the counterparties to a longer period of interest rate changes. Using break clauses in derivatives contracts allow counterparties the chance to terminate their contracts in order to reduce risk.
By Samuel Agini; [email protected]; @samuelagini
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