Notes to the Financial Statements
For the year ended 30 June 2009
INTEREST-BEARING LOANS AND BORROWINGS (continued)
No separate security has been provided by the Consolidated Entity in relation to lease liabilities. The rights to the leased assets revert to the lessor in the event of default. The facility was due to mature on 30 September 2009. A renewed facility of $1,200,000
has been approved by its bankers for a further 12 months to 30 September 2010. Documentation is in the process of being completed and is expected to be signed within the next 2 weeks. The current interest rates on finance leases range from 6.52% to 10.14% (2008: 7.44% to 10.14%). The lease terms range between 12 and 36 months.
(d) Interest rate hedge instruments
The Consolidated Entity manages the cash flow effect of interest rate risk by entering into interest rate cap and interest rate swap contracts.
Interest rate cap contracts are entered into for a principal Australian Dollar amount by paying an upfront premium that covers a specific period. The strike rates for these contracts are benchmarked against the BBSY bid rate (Australian Bank Bill Swap Reference Rate – Average Bid Rate) on a monthly basis. Settlement occurs monthly, in favour of the Consolidated Entity, should
the BBSY bid rate be above the cap strike rate (movements in the variable rate are directly proportional to movements in the BBSY bid rate).
Under the interest rate swaps, at the end of every quarter, the Consolidated Entity and the counterparty agree to exchange the difference between the interest calculated by applying the fixed contract rates and that calculated by applying the BBSY bid rate to the principal Australian Dollar amounts.
As at 30 June 2009, the principal amounts, rates and terms of the interest rate caps and interest rate swaps are as follows:
Type of derivative
Interest rate cap Interest rate swap Interest rate swap
Consolidated borrowings hedged
The Parent Entity has not entered into any derivative contracts.
AVJennings Limited ABN 44 004 327 771 67