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Interest Rate Hedging for an Irish Collective Asset-Management Vehicle
Case studies

Interest Rate Hedging for an Irish Collective Asset-Management Vehicle

Background
  • [GA Developments] An Irish collective asset-management vehicle (“ICAV”) secured floating rate debt funding from a non-bank lender to finance the development of the DIT Kevin Street campus
  • The ICAV’s aim was to reduce the interest rate risk associated with the funding and comply with the lender’s hedging requirement and was keen to minimise exposure with a cost-effective hedging solution
  • Given that the lender was unable to offer interest rate hedging derivatives, the ICAV had to be source hedging products from other counterparties
  • Following the introduction of EMIR regulation, any ICAV is defined as an Alternative Investment Fund (“AIF”), which is a Financial Counterparty and therefore requires any OTC derivatives to be cash-collateralised
Our Approach
  • JCRA worked closely with the ICAV and its lawyers to develop a suitable hedging strategy
  • Using our knowledge of the Irish hedging market, we approached a number hedge counterparties and found the most competitive which was also able to implement the required legal documentation (CSA, ISDA)
  • Alongside the ICAV’s lawyers, we explored other structuring possibilities such as creating an NFC- entity
  • JCRA maintained contact with the relevant stakeholders through the process to monitor the hedging instrument’s indicative pricing
Benefits
  • JCRA identified and negotiated transaction charges with the chosen hedge counterparty and benchmarked this pricing during the onboarding process
  • The ICAV was quickly provided with potential hedging solutions and suitable counterparties that fully met the regulatory and legal obligations under EMIR and the facility agreement
  • At financial close, JCRA benchmarked the economic terms of the execution of the hedging instrument to ensure fair pricing
 

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Contact us

If you need hedging or debt advice or would like to speak to the team, please get in touch.