Publicly traded Midwest-based pharmaceutical company.

The company had historically done its own hedge accounting, but struggled in assessing hedge effectiveness and accounting for complex hedge relationships.


Corporate Customer Achieves Credit Facility Extension


  • A public corporation elected cash flow hedge accounting for a pay-fixed interest rate swap that was hedging a floating rate credit facility.

  • The corporation wanted to extend their existing facility, but had a large negative mark on their existing cash flow hedge.

  • Additionally, the corporation did not want to pay the premium required to replicate the facility’s 0% floor in their new cash flow hedge.


  • The company engaged Derivative Path’s hedge accounting team to assess the effectiveness of the blend and extend hedging strategy.

  • Derivative Path also performed pro forma analysis on a variety of floor structures to create hedge effectiveness in a cost efficient manner.

  • Ultimately, Derivative Path provided the initial effectiveness assessment and was able to confirm an effective cash flow hedge using historical regression analysis and by excluding time value (the embedded termination fee) in the hedge effectiveness assessment.

  • Derivative Path provides on-going journal entries and updated effectiveness assessments to maintain cash flow hedge accounting treatment.