Interest rate swap meaning

O’Neil and others v HMRC [2026] UKUT 13 (TCC) The appellants were members of a Scottish firm that operated as a hotelier and as a travel agency. In 2007, as a prerequisite to securing borrowing, the firm entered into an interest rate hedging arrangement (the swap) with RBS. In 2014, RBS paid redress directly in relation to that swap to the appellants. By the date of payment, the firm had transferred its trade to Blackpool, a company that was a wholly owned subsidiary of Lythe, itself entirely owned by the appellants, and separately had disposed of its hotels to Lythe. The firm had entirely ceased trading. The appellants omitted the redress from their personal self-assessment returns and no notice to deliver any partnership return was issued for the period in question. The payment likewise did not appear in Blackpool’s return, although the company later accepted it was taxable on the sum and accounted for corporation tax. HMRC took the view the sum was a post-cessation receipt and then raised...

Banking & Finance—November 2024 case round-up Sata Internacional-Azores Airlines SA v Hi Fly Ltd and another company [2024] EWHC 2762 (Comm) Aviation finance—unpaid rent—novation of lease—rectification of novation agreement The claimant, SATA Internacional-Azores Airline SA (SATA), leased an aircraft from the defendant, Hi Fly Ltd (Hi Fly). By 2019, SATA was experiencing financial difficulties and, following negotiations, Hi Fly sold the aircraft to a third party, AELF, with the lease simultaneously novated so that AELF became the lessor. AELF and SATA then agreed to terminate the lease early, providing for re-delivery on an ‘as is where is’ basis in return for a lump sum termination payment. When these arrangements were put in place, SATA owed Hi Fly just under US$3m comprising unpaid rent, maintenance reserve payments and default interest. Of that total, a little under US$1m related to amounts outstanding from before 1 September 2019, and it was accepted that SATA remained liable to Hi Fly for that portion. There was, however, a dispute concerning the remainder...

Project documents This Practice Note offers an overview of several widely used agreements and papers in a PFI/PF2 scheme, though the precise suite adopted will turn on the particular project. In the 2018 Budget (delivered on 29 October 2018), the government stated that PF2 will not be used for new schemes (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). That said, existing PFI and PF2 arrangements will remain in operation and, given the usual term of such projects, are expected to continue for many years... Project Agreement This is the core contract in any PFI arrangement. It records the full set of terms and conditions governing the relationship between the Authority and Project Co/SPV for the life of the project. Where Project Co/SPV is granted a concession (ie the exclusive right to supply/operate/exploit something to create third party revenue), the Project Agreement may be described as a concession agreement. Typically a substantial document, it is often divided into multiple sections for manageability. Under...

The principal categories of derivatives are: swaps forwards futures options This Practice Note outlines the essential characteristics of each of these derivative classes. For a broad primer on derivatives, refer to Practice Note: Introductory guide to derivatives. Swaps A swap encompasses a broad spectrum of derivative arrangements. Originating in the 1980s, swaps have grown into a global marketplace with notional amounts running to trillions of pounds. They are governed by varying rules and legal regimes according to the venue where they are traded. Swaps are commonly recorded under the International Swaps and Derivatives Association (ISDA) documentation architecture. For further detail, see Practice Note: Derivatives—ISDA documentation framework. For insight into the reasons parties use swaps, see Practice Note: The nature of financial derivatives—Key uses of derivatives. Under a swap, two counterparties enter into an agreement to exchange cashflow streams. Each participant makes periodic payments to the other, with one party’s payments calculated on a basis that differs from...

This Practice Note offers a concise primer on repackagings. For links to resources with deeper guidance on particular aspects of repackaging transactions, see: Further information. What are repackagings? Repackagings constitute a form of asset-backed security (ABS), i.e. a limited recourse debt instrument issued by a bankruptcy-remote special purpose vehicle (SPV) and secured against a financial asset or a pool of financial assets. The objective of a repackaging is to deliver a bespoke ABS investment with a blend of credit, currency, interest rate and/or payment date features that are otherwise unavailable to the investor. Typically, a repackaging ABS issue is held to maturity by a single investor and may have been prompted by a reverse enquiry from that investor. What is an asset swap repackaging? Asset swap The most straightforward and most common variety of repackaging is an asset swap repackaging (or asset swap repack). An asset swap is a routine market transaction where an investor purchases interest-bearing bonds and then enters into a swap agreement...