Solicit indicative quotes from three to five qualified hedge providers on the same day with identical notional, strike, term, and reference index (one-month SOFR standard). Normalize to a single all-in dollar premium, weight against counterparty rating (minimum A-/A3), and execute on cleanest documentation.
Mechanics of a clean rate-cap RFP
Define the cap precisely before sending: notional (typically the loan amount or a stepped notional that matches the loan's amortization schedule), term (matching the loan's initial term, not extended term), strike (the index level above which the cap pays the borrower), reference index (one-month SOFR is the institutional standard for SOFR-priced bridge), and settlement convention.
Solicit simultaneously. A 50 to 100 basis point change in premium in minutes is a regime break, not a normal intraday move. Send the RFP with a defined response deadline (typically 30 to 60 minutes during market hours).
Counterparty selection matters for documentation and execution speed. The lender will require a minimum counterparty rating (typically A-/A3 or better) and will require the cap to be assigned to the lender or to be subject to a side letter giving the lender enforcement rights. Providers with established lender relationships close caps in days; new counterparty relationships can add weeks.
Documentation: ISDA Master Agreement plus Schedule plus Confirmation. Sponsors with existing ISDA infrastructure execute faster; first-time hedgers should expect 2 to 4 weeks of documentation work in addition to the cap negotiation itself. Plan the timing into the closing schedule.
Sources
- Secured Overnight Financing Rate (SOFR) · Federal Reserve Bank of New York · daily
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11