Droit inc. – Financial Swaps: Legal Challenges and Practical Insights

Our recent article, Les swaps financiers démystifiés : enjeux juridiques et applications pratiques, authored by Charles-Antoine Bilodeau and Suzanne Villeneuve, was republished by Droit inc. (Available in French only).

In this article, the authors provide an overview of financial swaps—agreements between two parties to exchange cash flows, commonly used to manage interest rate risk. They illustrate how swaps can transform floating-rate loans into fixed-rate obligations, offering stability in volatile markets.

The authors also explore key legal challenges related to swaps, including their classification as secured obligations in syndicated loans, the implications of early loan repayment, cross-default provisions linking loan and swap defaults, and cross-collateralization issues that affect claim priorities.

Finally, they share practical guidance for lenders and borrowers, emphasizing the importance of precise drafting in intercreditor agreements, considering co-termination clauses, and anticipating breakage costs under ISDA agreements.

Read the full article on Droit inc.