Are Middle Market Companies Doing Enough to Hedge Their Interest Rate Risk?
With the possibility of rising interest rates on the horizon, middle market companies that fail to engage in any type of hedging activity are potentially leaving themselves exposed to higher costs of capital in the future. However, many of these companies are comfortable taking this risk today. These are some of the observations from Neil Wessan, Group Head and Managing Director, CIT Capital Markets, a division of CIT Group Inc. (NYSE:CIT) , a leading provider of commercial lending and leasing services, in “2015 Capital Markets Outlook” (www.cit.com/wessan), the latest piece of market intelligence in the CIT Executive Insights video series of in-depth executive Q&As.
“We think it’s a mistake for middle market companies to operate with high amounts of exposure that could be impacted by rising interest rates,” said Wessan. “Companies can take a prudent approach today and avoid high costs tomorrow through a variety of products. Doing this could help protect their loans rather than waiting to hedge once rates have already risen.”
Some of the other Capital Market trends Wessan reflects on include:
- Regulations Remain a Concern: Regulations remain one of the top concerns for many middle market companies when they inquire about lending and loans, which is forcing total leverage and first lien leverage down.
- ACA, Taxes and Government Intervention Pose Challenges: New regulatory issues and the environment surrounding the Affordable Care Act, taxes and government intervention in many new fields are presenting challenges for many middle market companies.
- 2015 Outlook Is Positive: Lenders that can roll up their sleeves and demonstrate their deep industry expertise within industry verticals, such as healthcare, should see success. Transactions that are in heavily regulated industries that challenge current regulations will be very expensive.
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Founded in 1908, CIT (NYSE:CIT) is a financial holding company with more than $35 billion in financing and leasing assets. It provides financing, leasing and advisory services principally to middle market companies across more than 30 industries primarily in North America, and equipment financing and leasing solutions to the transportation industry worldwide. Its U.S. commercial bank subsidiary, CIT Bank (Member FDIC) BankOnCIT.com, offers a variety of savings options designed to help customers achieve their financial goals. cit.com
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