A bank offered to swap a subsidised fixed rate for a floating one. We said no.

The situation

The group held a development-bank pass-through facility at a subsidised fixed rate — funding whose entire commercial advantage is that it is fixed and below market. A lender proposed converting the exposure to floating through an interest rate swap, presented as a way to benefit from an expected easing cycle.

What the numbers showed

The proposal inverted the reason the facility was valuable. Overlaying a floating-rate derivative on subsidised fixed-rate funding trades away a certain, contracted advantage for an uncertain one, and the payoff is asymmetric: the gain is bounded by how far rates fall below what the forward curve already prices, while the loss is bounded only by how far they rise. For the trade to pay, rates had to fall further and faster than the market already expected — a bet the group had no informational advantage in making, and no operational reason to take.

The decision

Recommended against. The facility was kept as originally contracted.

What changed

Nothing — which was the point. The most valuable output of a treasury review is often the transaction that does not happen.

What this engagement was not

Not investment or derivatives advice, and not a market view. The analysis addressed the group’s own funding position and the risk being introduced into it.

Anonymised at client request. Figures are stated as ranges or ratios where absolute values remain commercially sensitive.