Interest rate hedging for a UK buyout
Case studies

Interest rate hedging for a UK buyout

  • Carve-out from a larger corporate financed by USD and EUR debt provided by debt funds plus one bank RCF provider
  • The loan terms included a minimum interest rate of 0 % for EURIBOR and LIBOR respectively
  • The minimum hedging was 66 % of the term facilities for 2 years
Our Approach
  • Produce an analysis paper outlining the various hedging alternatives available to the business for both EUR and USD debt
  • Demonstrate advantages and disadvantages of available hedging strategies in particular in the context of 0 % floors on EURIBOR and LIBOR and the two very different interest rate regimes in EUR and USD
  • Rigorous benchmarking with bank lender and introduction of external competition to increase price tension

Informed decision on hedging strategy:

  • Out-the-money caps for a tenor longer than the minimum term required chosen as tail risk hedge for the anticipated hold period
  • Flexibility of caps allows borrower to benefit from lower interest rates than projected by the market and to de-lever more aggressively without having issues with hedge termination

Deferral of cap premiums at rates significantly lower than cost of funds for improved cash-efficiency


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Contact us

If you need hedging or debt advice or would like to speak about how we could help your business, please get in touch.