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UK REIT: Pre-hedging loan breakage costs
Case studies

UK REIT: Pre-hedging loan breakage costs

Background

A listed UK REIT was looking to substitute and dispose an existing fixed rate loan

This would have led to partial repayment of the loan

JCRA was appointed as independent advisor to:

  • Manage the partial termination process and ensure transparent pricing of the breakage costs
  • Mitigate the market risk of a further downward movement in interest rates
  • Advise on a pre-hedging strategy to limit the potential increase of the loan’s breakage costs between exchange and completion
  • Run the hedge-execution process to ensure transparent and competitive pricing
Our Approach
  • After discussing the business plan with the company, we determined the key objectives and advised on the most suitable pre-hedging strategy using interest rate swaptions
  • We helped the company with sourcing a competitive hedge counterparty to implement the hedging strategy within the company’s deadline
  • We opined on the methodology applied by the lender to determine the breakage costs of the fixed rate loan
  • Continuous benchmarking with the lender and hedge counterparty to ensure fairness and transparency
Benefits
  • Transparent and fair loan breakage costs
  • Removal of market risk to contain the interest rate risk
  • Highly effective hedging strategy in line with the company’s objectives
  • Significant time and resource savings, due to an efficiently run process
 

More case studies

Case studies
UK real estate JV: Libor discontinuation and hedging
Real Estate October 2019
Case studies
Castle Marinas: Hedging a refinance
Real Estate July 2019

Contact us

If you need hedging or debt advice or would like to speak to the team, please get in touch.