Interest rate hedging for a privately owned company
Case studies

Interest rate hedging for a privately owned company

  • 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
Our Approach
  • 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.

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