By decision dated December 23, 2022, the Court of Milan declared the nullity of the swap contract designed to hedge the underlying indexed financial lease “due to the non-existence in the abstract of the risk in relation to all the variations of the parameter interest rate […]†and to the consequent “lack of the cause of hedgingâ€.
The case involves a company which entered into a swap on January 30, 2012, to hedge the risk of fluctuations in the floating interest rate (3M Euribor) to which the instalments of the underlying financial lease contract were indexed. Through the swap contract, the company neutralized the risk of fluctuation of interest rate and thus the risk of a possible increase in the payment of the indexed instalments of the underlying lease, by synthetically transforming the variable-interest rate debt of the underlying lease, into a fixed-rate debt (2.537%). The synthetic interest rate transformation allowed the contracting company, in a scenario of decreasing interest rates below the fixed threshold specified in the swap contract, to offset the payments due to the bank under the swap with lower disbursements made on the underlying lease, while in a scenario of increasing rates above the fixed interest rate specified in the swap, to receive the differential flows from the bank. However, the correlation between the hedging swap contract and the underlying financial lease was not perfect due to the presence of a floor clause in the financial lease (whereby the variable 3M Euribor rate could not fall below 0.3%), a component which was absent in the swap. Read more
