Melio & Company advised The University of Chicago Medical Center on the novation of half of its $325 million swap
As UCMC prepared for the construction of the New Hospital Pavilion in 2006, it entered into a forward starting swap to hedge $325 million of its future variable rate exposure. During swap negotiations, UCMC was able to negotiate purchasing swap insurance for when the mark-to-market on the swap exceeded a certain threshold. However, since the collapse of the markets and the exit of bond insurers from the market, swap insurance was no longer feasible. The swap counterparty was asking for a collateral posting requirement in lieu of the swap insurance. In response, Melio & Company evaluated several options to lower UCMC’s exposure to posting collateral. After reaching out to a select few banks for terms and pricing, Melio & Company reviewed the options for reducing UCMC’s collateral posting. UCMC selected Wells Fargo and novated half of its $325 million swap to Wells Fargo in August 2011. In doing so, UCMC doubled its collateral posting threshold and has not had to post any collateral.