- Large privately owned company with operations in the US and Europe
- Existing interest rate hedging coming to maturity next year
- US term loan including a minimum interest rate of 1% on LIBOR
- No obligation to hedge, but client was keen to mitigate interest risk for the future unhedged portion
- Limited credit appetite from existing lending banks given the high leverage at the asset level
- Thorough analysis of the business (cash generation, cash sweep mechanism, LIBOR floor, capacity to absorb higher interest cost, potential for corporate events: exit or refinancing) informing our recommendation on interest rate hedging strategy.
- Factoring specific client constraints to design the hedging strategies: maximum interest cost bearable, breakage cost control and optimal tenor.
- Additional analysis covering future refinancing and the best way to pre-hedge.
- Source external hedge counterparty.
- Suitable hedging strategy, in the form of a forward starting swap without floor buyback, to cover debt until final maturity with an accelerated amortization of the notional to limit breakage cost in case of exit/refinancing.
- Significant time and resource savings, due to efficiently run counterparty selection and on-boarding process.
- Significant monetary savings due to introduction of external hedge counterparty which forced existing lenders to converge on the best pricing.