Around the globe, and here in New Zealand , corporate treasurers are currently being challenged with a set of circumstances and issues many have not encountered before:-

• Business operational cashflows disrupted and volatile as the economic recession bites.
• Financing options constrained and considerably more expensive.
• Currency and interest rate risk exposures changing rapidly as business forecasts/prices shift around, as well as capex/investment amounts and timing also shifting.
• Plunging market interest rates resulting in large “marked-to-market” revaluation losses on swap portfolios.
• Plunging NZD currency value resulting in some “marked-to-market” losses on longer-dated FX hedging books.
• Debt covenants calculated on NZD debt amounts for foreign currency loans, but FX revaluation gains on offshore assets being financed ignored.
• FX dealing limits from banks also denominated in NZD's, thus exporters experiencing credit restrictions to entering long-term FX hedges.
• Bank lenders trawling through corporate customer's loan documentation to find “out” clauses to locked-in lending fees and margins.
• New “market disruption” clauses appearing in bank loan documentation, whereby the bank lender can demand repayment at short-notice if their own funding markets are non-accessible. Such clauses are becoming standard around the world and many borrowers will have to accept the new reality and live with the risk. “Committed term bank funding” has a whole new definition.
• Corporate borrowers, who did not negotiate the “carve-out” of derivative marked-to-market gains/losses from lender covenant/ratio calculations when the NZIFRS standards were introduced two year ago, now understand the implications of not doing so.
• Corporate credit spreads remain elevated as financial losses and business failures cause credit-rating downgrades and lender nervousness.
• Global banks wanting to be global no more.
• When to implement a fuel price-risk hedging policy, or will oil prices go lower?
• Steeply upward-sloping interest rate yield curve in New Zealand that we have not seen for five years.

Treasurers and CFO need to be able to explain to the Board directors that market revaluation losses on swaps are unrealised, non-cash and do not really change their funding cost through the fixed rates they have locked into. Such “marked-to-market” losses should be reported below the line and not disrupt lender covenant calculations. If you don't want to experience mtm losses, then do not hedge anything and take the spot market volatility through your accounts. That is the alternative.