Swaps and Hedges

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Kutak Rock has extensive experience representing swap dealers, end users and credit enhancers in all the types of swaps and other hedging devices. Public finance hedging is usually related to tax-exempt bond issues and involves complex legal issues unique to public finance, including questions involving authority, security and the effects of the hedge upon the related financing’s tax-exempt status. Specific provisions of the Dodd-Frank Act also are applicable to state and local government swaps.

The types of derivatives involved are usually interest rate derivatives, including fixed-to-floating rate swaps, caps, swaptions and basis swaps, total return swaps and certain kinds of commodity swaps. We are expert in these areas and have obtained some of the very few private letter rulings obtained from the IRS relating to public finance-related swaps.

Our Derivatives Group represents:

Swap Dealers
We regularly represent several major banks and U.S. and foreign investment banks in municipal swap transactions, including swaps with conduit borrowers. We give opinions, review and help negotiate documentation, and help to identify and structure around any legal risks in the transaction whenever possible. The transactions range from general obligation or revenue-supported interest rate swaps with traditional municipal entities to real estate-secured total return swaps with multifamily housing project owners.

As a leading national bond counsel firm, we often represent state and local governments or conduit borrowers in connection with swaps. Our Derivatives Group works collaboratively with our Public Finance lawyers and Tax Department to negotiate these transactions and the related bond or other financing to make sure they meet all state and federal legal requirements.

Credit Enhancers
We are one of the main firms representing Freddie Mac in connection with interest rate swaps and caps it credit enhances in connection with multifamily housing bond issues. Although bond insurers are much less active, we represented one of the largest bond insurers when it was active in this area and continue to represent several bond insurers in work related to swaps insured in the past.

Federal regulators are slowly beginning to release long-awaited final regulations implementing the Dodd-Frank reforms of derivatives regulation. Some of these reforms will have major, but highly uncertain, effects upon the municipal swap market. Kutak Rock continues to monitor and discuss these regulations with our clients on an ongoing basis and will advise in connection with implementation in the months ahead.