Franklin Credit Hedges Against Rates
In a bet that recent steep drops in short-term interest rates may be coming to an end, Franklin Credit Management Corporation said Wednesday that it had entered into interest rate swap agreements, hedging a portion of its interest-rate-sensitive borrowings against future increases in short-term interest rates. The scratch-and-dent mortgage operation said it entered into $725 million of fixed-rate interest rate swaps in order to effectively stabilize the future interest payments on a portion of its interest-sensitive borrowings. The fixed-rate swaps are for periods ranging from one to four years, are non-amortizing, and are in effect for the respective full terms of each swap agreement. The swaps will reduce the company's exposure to future increases in interest costs on a portion of its borrowings due to increases in LIBOR. The one-month LIBOR rate was 3.12% at the time the swaps were executed. "We were able to take advantage of favorable swap rates in the capital markets and fix the cost of a significant portion of our interest-sensitive debt at a weighted average fixed rate of 2.81 percent," said Paul Colasono, Franklin Credit's CFO. The hedges come at a time when the one-month Libor rate had declined over 200 basis points since mid-December 2007, and swap rates at the one- and two-year maturity points were lower than 30 day Libor, Colasono noted. For more information, visit http://www.franklincredit.com.