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Referring Randal

You’ve identified an opportunity to refer Randal to a Global Markets Specialist. Let’s look at how the story unfolds from here.

Contacting Global Markets

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Once an opportunity has been identified, contact either your local Global Markets Specialist or the Commercial Interest Rate Desk in Sydney.

Have the relevant loan details ready when you make contact. This will allow the Global Markets Specialist to assist your client quickly and seamlessly.

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Assessment of needs

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Once Randal Rural Properties Pty Ltd had been referred to James, the Global Markets Specialist, they had a conversation to further assess the needs.

It became apparent that Randal Rural Properties Pty Ltd were looking to sell some current properties in the next fifteen months to pay down $2m of their debt.

While they had the need for interest cost certainty, they also needed flexibility to accommodate the potential sale and the repayment of debt.

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The Combo solution

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James was able to provide a range of solutions, and Randal agreed that the Combo solution on the total debt of $4m was the most suitable to meet the business’ needs.

The Combo was a five-year Fixed rate on $2m of 2.75% with interest only repayments, quarterly rollovers, and a Variable Market Rate on $2m, also interest only with quarterly rollovers currently at 1.83%pa.

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What is a Combo solution?

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The Combo solution combines a Fixed Rate and a Variable Market Rate, and splits the loan into two portions:

1) Fixed and

2) Variable.

It provides a single loan balance (the ‘Combined Loan’) resetting at the weighted average rate. The Fixed portion can have scheduled reductions, and the principal can be repaid ahead of schedule on the Variable portion.

Randal Rural Properties was happy with this solution. They were able to achieve certainty in their interest costs on a portion of their debt while maintaining the flexibility they required.

For a more detailed description of the Combo Solution, including benefits, costs and risks, click the ‘Combo Solution’ button.

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Combo solution

Description

  • A solution combining a Fixed Rate and a Variable Market Rate.
  • Splits the Loan into two portions: 1) Fixed and 2) Variable.
  • Provides a single Loan balance (the “Combined Loan”) resetting at the weighted average rate.
  • The Fixed portion can have scheduled reductions.
  • Additionally, principal can be repaid ahead of schedule on the Variable portion.

Benefits of Combo Solution

  • Offers some protection against a significant future increase in interest rates during the term of the Combo - if interest rates rise, the fixed portion is protected.
  • Offers some ability to benefit from falling interest rates during the term of the Combo - If interest rates fall, the Variable portion benefits from lower interest rates.

Costs and Risks of Combo Solution

  • Can involve an immediate increase in cost of funds over short-term interest rates.
  • No protection against rising interest rates on the variable portion.
  • Unable to benefit on the fixed portion if interest rates fall.
  • Limited repayment flexibility – amount borrowed in fixed portion is fixed for the term of the loan.
  • Termination cost may be incurred if the Combo is terminated early (prior to the maturity date).