Rollercoaster Swap

First off, we just want to make it very clear that a “rollercoaster swap” is not a Chinese fire drill performed on a rollercoaster, so don’t go getting any crazy ideas out there. Safety first.

A “rollercoaster swap” is actually a payment arrangement made between two counterparties with oppositional seasonal sales that allows payments to be automatically adjusted, such that each party pays more when their sales are high and less when their sales are low. You do not need to be this tall to ride this ride.

To illustrate how this works, let’s take a hugely oversimplified example. Let’s say we own a grill store in Portland, Oregon. That’s all we sell: grills and grilling accessories. As one might imagine, our sales tend to go up in the summer and down in the winter. No one’s out there grilling up a ribeye when it’s forty degrees and sleeting outside. On the other side of town, our sister Betty owns a ski and snowboard shop. Her sales tend to go up in winter and down in summer. Now let’s say each of our companies has taken out a $100,000 loan. With a rollercoaster swap, we can enter into an agreement where we pick up some of Betty’s debt burden in the summer and she picks up an equal amount of ours in the winter. That way, we’re both able to continue to pay down our loans, but we don’t have to strap the business trying to make big payments during our off-season.

As we said, that’s a hugely oversimplified example. Seasonal swaps are usually much more complicated and can involve stuff like changing or floating interest rates, differing currencies if we’re going international, even varying intervals of time between payments. Rollercoaster swaps are highly regulated by the banks that participate in them, and there are all kinds of tax and accounting implications that go along with them. So if we are in a seasonal business and a rollercoaster swap sounds like it just might be our kind of party, we should definitely consult with our favorite tax accountant to find out if it’s a good option for us.