Credit Risk & Underwriting
Interest Rate Risk
Summary
Interest-rate risk is the exposure of borrowing costs, valuations and debt-service capacity to changes in reference rates and credit spreads.
Why this matters in ship finance
Floating-rate facilities can lose coverage in rising-rate conditions even if freight earnings remain unchanged.
The concept
Loan pricing may reference compounded risk-free rates or fixed terms, plus margins and fees; swaps and caps can reduce selected exposures subject to cost, tenor and collateral requirements.
How it is used in practice
Compare fixed and floating interest schedules, stressed rates, swap maturity mismatch and break costs under early prepayment.
Practical issues
An interest-rate swap is not a free hedge and can generate mark-to-market or close-out exposure. Facility reference rates are contract-specific.
How ShipFinance.ai uses this concept
Link rate scenarios and derivative cash flows to loan amortisation and liquidity.
Key takeaways
- Hedge tenor should match debt exposure
- Interest rate and spread are different
- Derivative risk requires monitoring