Spartan Casino case solution
Interest payments on the loaning are settled on the basis of the LIBOR tenor chosen (e.g., if Spartan picks three-month USD LIBOR as the referenced rate, interest is due every 3 months on that loaning). Spartan’s interest rate danger management policy needs that at least 75 percent of its impressive financial obligation be repaired rate (either straight or indirectly through the usage of derivatives). In order to keep compliance with its policy, Spartan got in into an interest rate swap to “transform” the loaning from variable to set interest.
The Company designated the interest rate swap as a hedge of anticipated interest payments associated with modifications in 3M-USD-LIBOR on the very first formerly unhedged $50 million of 3M-USD-LIBOR based financial obligation. After 2 years, Spartan continues to pay interest on the $125 million loanings on time, in addition to settling the interest rate swap each quarter.