Changing Pool of Cap Providers: 2023 Caps

The Fed outlined a path for rates to remain elevated through 2023 and cap premiums, particularly for shorter term hedges, are much higher than a year ago. As borrowers consider caps for 2023 and beyond in this environment, we wanted to provide an update on the cap provider landscape.

The cap landscape has changed drastically as of recent. Several banks new to the market have become key players with others stepping back, and CBA even closing their cap business altogether. As hedge extensions occur, it’s important to ensure your hedge advisor is shopping the cap to multiple banks in lieu of only extending with the existing provider.

Several providers who previously offered caps only on a relationship basis or when they are the lender are now major players in the market and have proven to be good counterparties. These banks have carved out a new niche by providing cost efficient pricing with onboarding as quick as any other provider and the ability to accommodate lender requirements (collateral assignments, opinions, credit ratings).

That said, every market counterparty has certain limitations as to what’s acceptable to them in terms of requested rate cap stipulations, so the intricacies of each trade yields a different pool of eligible/competitive providers.

As with new caps, it’s critical for advisors to check the full spectrum of eligible banks in the rate cap market when extending a hedge, especially in an environment where every dollar matters that much more and proceeding with another bank could provide material savings. To discuss, please reach out to us at pensfordteam@pensford.com or give us a call at (704) 887-9880.