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Interest rate and FX hedging for a UK buyout
Case studies

Interest rate and FX hedging for a UK buyout

Background
  • Multi-jurisdictional professional services firm
  • Ability to draw in multiple currencies and redenominate debt on a number of occasions during debt term
  • The loan terms included a minimum interest rate of 0% for EURIBOR and LIBOR respectively
  • The minimum hedging was 67 % of the term facilities for 3 years
Our Approach
  • Analysis of multi-currency exposures within the firm and identification of natural hedging via debt currency denomination
  • Benchmarking currency redenomination as part of the drawdown process to ensure accurate pricing
  • Thorough understanding of the business (highly cash generative, cash sweep mechanism, significant headroom on debt service covenants, LIBOR/EURIBOR floors) informing our recommendation on the interest rate hedging strategy
Benefits

Scrutiny on debt currency denomination

  • Analysis supporting the intuitive decision to have a mix of currency debt with the benchmarking saving 10x the spread first quoted by the loans administrative team
  • In order to achieve market-facing rates, it is essential to deal with a front-office FX team

Informed decision on hedging strategy:

  • Out-the-money caps for minimum term to allow any early repayment and to accommodate LIBOR/EURIBOR floors
 

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