How BLP Interest Rate Swaps Work
Attract New Customers with Borrower’s Loan Protection® (BLP)
With BLP, you can meet customers’ needs for competitive, fixed-rate payment structures, while your institution receives a floating rate over the full term of the loan.
BLP is not a back-to-back swap, like most other solutions. Instead, the derivative sits on PCBB’s balance sheet, saving you valuable time and potential labor costs by eliminating the administrative and accounting challenges that come with a back-to-back swap.
Watch Our Simple BLP Process
This two-minute video demonstrates the simple process of a typical BLP interest rate swap transaction and how easy it is to calculate the fixed rate for your borrower.
Easy Step Process For How BLP Works
You issue a floating rate loan
- Floating rate loan is all you have on your books.
- You keep the customer relationship and credit risk.
Your customer receives a fixed rate
- The borrower will sign a short legal document with PCBB.
- A fixed rate is provided which overlays the floating rate loan with you.
- This agreement is the only direct interaction PCBB has with your borrower.
PCBB hedges the interest rate risk and hosts a derivative on its balance sheet
- The borrower makes 1 monthly fixed payment to you.
- PCBB then settles net payments with you.
Example: Typical Structure: 20-year amortization and 10-year term
| Calculate Details | ||
|---|---|---|
| Fixed rate for borrower | ||
| 10Y swap rate: | 3.85% | |
| Credit spread: | + | 2.50% |
| 6.35% | ||
| Initial floating rate for bank | ||
| SOFR, 30 day compounded: | 4.31% | |
| Credit spread: | + | 2.50% |
| 6.81% | ||
Why Choose BLP?
See the many benefits BLP offers and how PCBB compares to the competition. Our BLP solution eliminates several obstacles, giving you the tools to successfully close more deals with your borrowers.
When it comes to loan hedging, our BLP product not only meets your borrower’s needs, but also yours.
| Our BLP Solution | Back-to-Back Solutions | ||
|---|---|---|---|
| Hedging Arrangement | Borrower pays a fixed rate under Rate Protection Agreement with PCBB | Lender has a swap with the borrower, plus another offsetting swap with a broker-dealer | |
| Lender has a floating rate loan with no derivatives on its books | |||
| Hedging Loan Features | |||
| Eliminates ISDA documentation and derivative accounting | |||
| Ability to generate upfront fee income through swap | |||
| Forward rate lock capability | |||
| Hedge from 2 to 30 years without mutual credit puts | |||
| Eliminates posting of cash collateral for initial and ongoing variation margin | |||
| Eliminates cash collateral for forwards with a secured CRE lien | |||
| Single invoice and payment for hedged loans | |||
| Loan Types | |||
| CRE (including housing, office, shopping centers, self-storage, and more) | |||
| C&I (including transportation, heavy equipment, industrial storage, and more) | Varies | ||
| Borrower Items | |||
| Short and simple hedge agreement for borrower’s signature | |||
| Hedge is assumable and assignable | Varies | ||
| One fixed, monthly payment to your institution | Varies | ||
| Training and Support | |||
| Onboarding training geared for lenders | Varies | ||
| Team available for product education with lender and borrower | |||
| Hedge provider that does not compete with your institution | Varies | ||
| Hedge experts available by phone or in-person | Varies | ||
| On-the-go pricing & rate scenario modeling with the mobile-optimized BLP portal | Varies | ||
| On-demand, customized marketing material for your borrowers with your institution’s logo | Varies | ||
Perks of Having PCBB as Your Partner
BLP gave us a way to make an offer to the customer and potentially keep them from shopping with our larger competitors.
Index Rate Choices
Multiple index alternatives give the flexibility to use what works best for you. If you need help deciding, our specialists can provide guidance.
We offer:
- U.S. Effective Federal Funds Rate (Fed Funds)
- SOFR (Compound)
- 1-Month Term SOFR
