Interest Rate Swap Linked With Freight Rates

By Evangelos Hahos, Chemnav Inc.

(How to pay lower interest when markets are down and higher interest when markets are up)

Interest rate risk
Cash flow is all companies’ lifeblood. Shipping companies, apart from the technical – operational and asset value risk, mainly face two risks:

1. Freight rate risk (cash inflows from hires / freights).
2. Interest rate risk (resulting from bank loan financing).

Traditionally, shipping companies have been bank financed and faced the implied exposure to interest rate risk (pricing at US$ Libor plus margin basis).

During the last two months, interest rates fluctuated very fast to both directions, and consequently interest expense borne by companies changed significantly.

Traditional interest rate risk hedging instruments
Several structures have been evolved in

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