Navigating Rate Uncertainty: The Power of Life Co “Floating-to-Fixed” Loan Programs

Navigating Rate Uncertainty: The Power of Life Co “Floating-to-Fixed” Loan Programs

One of the major benefits Life Insurance Companies have relative to other capital sources is their ability to custom-tailor solutions to borrowers’ business plans.

For example, one of our Life Co partners offers a unique “floating-to-fixed” program. Under this program, a borrower starts their loan term—usually 3 years—on a floating-rate loan priced at a spread above SOFR, typically in the low-200 range. There is a one-year lockout prepayment period before the loan is allowed to be prepaid in full. At any point after loan close, at the borrower’s choosing, they can elect to fix the rate for a 25 bps (0.25%) lender fee over a corporate bond index plus a spread for a fresh 3-, 5-, or 7-year term.

Who Is This Program Designed For?

This program is perfect for borrowers who:

• Want optionality
• Want flexibility
• Are not sure where rates are going
• Want to take advantage of the arbitrage that exists between today’s SOFR relative to where 3-, 5-, 7-, and 10-year Treasuries are pricing

Lender Preferences & Terms

This lender’s preferred asset classes are diverse, and they can get creative, but they are particularly fond of NNN, investment-grade credit deals. There is no origination fee, and loans are typically non-recourse with standard “bad boy” carveouts.

Borrowers with somewhat of a transitional component to their business plan, or those who simply desire flexibility and optionality not commonly found in other lenders’ programs, could certainly benefit from a structure such as this.

-Jonny Soleimani, Vice President