Financing

Risk
Just under two-thirds of Klövern’s activities are financed by borrowing from banks and credit institutions. Consequently, Klövern is exposed to financing and interest rate risks. Through Klövern using various derivatives to manage its interest rate risks, the company is also exposed to the risk of change in value of these derivatives.

Management
The financing risk is managed by goals in the financial policy for maturities on tied-up capital, loan maturity volumes in particular years and loan volumes in relation to counterparts. The goal for the tied-up capital is for the interest-bearing liabilities to be at least three years, although at year-end it amounted to 1.9 years. Refinancing has extended the period of tied-up capital to to around 2.5 years at the beginning of 2012. The problems in the financial market in recent years with restricted liquidity, in particular, for long-term capital, mean that compliance with the goal for tied-up capital would have made Klövern’s borrowing significantly more expensive. Klövern has deliberately chosen a shorter period of tied-up capital in order to avoid locking in high margins for a longer period of time. Tied-up capital for the various loans shall also be distributed over several years. There should not be a maturity exceeding 35 per cent of the total interestbearing liabilities in any single year. However, this goal was exceeded in 2011. A spread of borrowing among many lenders reduces the financing risk. Klövern has six different credit institutions and the goal of a maximum of 50 per cent of Klövern interest-bearing liabilities is not exceeded for any counterpart. At the beginning of 2012, Klövern broadened the forms of finance by issuing preference shares and two bond loans.

Klövern has chosen to protect itself against rising interest rates by exchanging variable loans for fixed loans through interest rate swaps. The total volume of swaps is SEK 4,800 million. Fixed-interest loans thus account for just over half of the loan portfolio. In addition, Klövern has entered into SEK 1,500 million of interest caps which state a set maximum level for the variable base rate for the chosen volume. When the market rate exceeds the strike levels, interest income is received to compensate for the higher interest expense. When the agreed interest for derivatives deviates from the market rate, there is a change in value that affects the company’s statement of income and balance sheet. However, the change in value does not have an effect on the cash flow. On maturity, the value of the derivatives used by Klövern is always zero.

Exposure