Jurisdiction(s):
United Kingdom

Key definition

Hedging definition

What does Hedging mean? In legal practice, hedging describes arrangements used by a business or investor to reduce or neutralise an identified financial exposure by taking an offsetting position that delivers the opposite payoff to the underlying risk. Its purpose is loss prevention or risk minimisation, not speculation. Hedges are commonly implemented through derivatives (for example, interest rate swaps to hedge floating‑rate loans, foreign exchange forwards for currency receivables, or commodity hedges), or via natural hedges that match assets and liabilities. Key legal features include: clear identification of the exposure; proportionality (avoiding over‑ or under‑hedging); basis risk; robust documentation (often under an ISDA Master...

Hedging in Loan Transactions: ISDA Framework, LMA/Intercreditor Requirements, and Review and Timing Considerations for Lenders’ Lawyers

Published by a LexisNexis Banking & Finance expert

Practice notes

For an explanation of why participants in a loan transaction may adopt hedging, see Practice Note: Use of derivatives to hedge against risk in a lending context.

Parties

The parties to the hedging arrangements will be:

the borrower, and
the hedging bank (often called the hedging counterparty)

The hedging bank will frequently be the lender, or, in a syndicated deal, one of the lending group. Nevertheless, the hedging bank operates in a distinct capacity from its role as lender, and separate teams within the bank will act for it in each role. For further details, see Practice Note: Use of derivatives in a lending context—documentation issues—Hedging bank and lending bank.

Hedging documentation in loan transactions

Certain facility agreements contain a clause detailing what hedging is required for a particular deal (for instance, clause 8.3 of the Loan Market Association (LMA) Single Currency Term Facility Agreement for Real Estate Finance Multiproperty Investment Transactions). Others may avoid specifying hedging in the facility and instead use the intercreditor agreement or a hedging strategy letter (see Practice Note: Guide to hedging within a financing context—for the financing lawyer—Hedging strategy letter) to set out hedging requirements as appropriate for the structure and risk profile concerned...

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

Web page updated on 21/05/2026

Popular documents

Using the Judicial College Guidelines to assess general damages in personal injury claims

When evaluating a general damages claim, the practitioner ought initially to refer to the Judicial College Guidelines (JCG)...

Tomlin orders in England and Wales: CPR guidance on drafting, confidentiality, approval, variation, enforcement, limitation, CCA issues, court-specific requirements, sample wording and precedents

This Practice Note This Practice Note reviews mechanisms used in settling litigation. A Tomlin order consists of a consent order paired with a schedule. It operates to stay proceedings on terms that have been agreed. The provisions contained in the schedule may remain confidential. This Practice Note describes the scope of confidentiality attaching to the schedule and sets out how it differs from a standard consent order. Sample wording for a Tomlin order is included, alongside links to precedents, as well as guidance on court approval. It also addresses varying, setting aside and enforcing a Tomlin order, including the considerations the court will take into account when handling applications for each. Further guidance is provided on interpreting and applying the relevant provisions of the CPR; however, some courts and divisions impose very specific requirements for both drafting and approval, and for approaching the schedule and confidentiality issues. Accordingly, you must consider the particular rules and court guide provisions in the forum where your claim is proceeding when drawing up the Tomlin order...

Precedent: Deed of Surrender of Lease with Optional Premium, Settlement and Release, Landlord, Mortgagee and Guarantor Consents, Reimbursement and HM Land Registry Provisions (England and Wales)

Date [ date ] Parties [ name of Landlord ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Landlord) [ name of Tenant ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Tenant) [ [ name of Guarantor ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Guarantor) ] [ [ name of Mortgagee ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Mortgagee) ] Definitions Within this Deed, the terms below shall be interpreted as follows: [ Annual Rent • the annual sum reserved under the Lease; ] [ Insurance Rent • the Tenant’s share of the Landlord’s costs of insuring the Property (as set out in the Lease); ] Lease • the lease of the Property dated [ date ], entered into between (1) [ the Landlord OR [ name ...

Precedent Statutory Declaration: Standard Wording under the Statutory Declarations Act 1835

I, [ name ], of [ address ], solemnly and sincerely state that: [ Matters to be verified, set out in numbered paragraphs ] I make this solemn statement in good conscience, believing it to be true, and pursuant to the provisions of the Statutory Declarations Act 1835. DECLARED at [ details ] this [ day ] day of [ month and year ] Before me ................................................................................ [ signature of the person before whom the declaration is made ] A [ commissioner for oaths OR [ solicitor OR [ insert other qualification ] ] authorised to administer oaths ]...