You can enter a forward swap to eliminate interest rate risk, but the spread risk still exists when the swap actually goes into effect. My goal is to convert a floating rate credit facility that will be funded at a future date into a fixed rate facility.
For example, suppose I take a loan today with a bank for $200mm at 1-Month Libor + 180bps (the "spread"), I can immediately enter into a swap paying 120bps and receiving 1-Month Libor, for an effective rate of 300bps.
Taking this one step further, suppose I enter into a forward swap that begins in 2020 at the same rate, paying 120bps and receiving 1-Month Libor. The only exposure I have left is the spread (The collateral is strong so I'm making the assumption there is no risk to funding the bank loan/credit facility at that time).
I'm not aware of any instrument I can use to eliminate or hedge the spread risk, and no lender (that I know of) will commit to locking in a spread at a future date. Is it possible to hedge this risk?