Large FX option for a PE-backed business
Case studies

Large FX option for a PE-backed business

  • PE-backed US-European business changing its debt currency mix via a refinancing process
  • The new debt was to be an unknown mix of EUR and USD while existing debt was mainly denominated in USD. his resulted in significant EURUSD exposure (>USD 1 bn) until the closing o the new financing
  • New financing to be undertaken in very volatile markets with significant execution risk
Our Approach
  • Outline and price several hedging strategies (forward, deal contingent, European and American option) to deal with the FX risk taking into consideration maturity extension (potentially several months)
  • Demonstrate the advantages of hedging with an FX option with deferred premium and analyse early close – out scenarios for both European and American options
  • Approach limited core banks (known for best FX pricing) to test appetite and ensure full confidentiality given the large market flow (>USD 1bn)
  • Advise on best way to execute this large transaction and conduct live benchmarking during implementation of trade to ensure market – adequate pricing
  • Market expertise and process to deal with large trade: independent pricing/benchmarking to ensure full confidentiality and avoid information leakage to the market
  • Harnessing the strength of our network with banks to ensure optimal counterparty was chosen
  • Very competitive pricing for a USD 1 bn+ trade in the FX option market
  • Transparency through a live benchmarking and execution outside normal market hours
  • Hedge close out optimization in order to reduce unwind costs and achieve significant savings

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