Interest rate, CPI and FX hedging for a windfarm portfolio
Case studies

Interest rate, CPI and FX hedging for a windfarm portfolio

  • This UK windfarm portfolio was funded by a floating rate commercial bank syndicate plus fixed rate and CPI linked institutional debt.
  • Our role was to structure and manage a transparent and efficient hedge execution process.
  • FX hedging was required at financial close (FC) to cover capex construction and equipment costs. This FX hedge was to be structured as time option forwards to cater for an uncertain delivery date structure.
  • FX part pre hedging was already in place with a non-lender counterparty.
  • In order to demonstrate best value the interest rate hedging was competed among the commercial banks and subsequently novated to the relevant pro rata lenders.
  • FX hedging was also competed to establish the best execution and credit. This was intended to remain with the most competitive provider.
  • Debt facilities were up to 15 years and the flexible forwards were spread over two years.
Our Approach
  • Liaise with the borrower to ensure the chosen hedge structure matched the business plan assumptions and offered the required level of flexibility.
  • Review commercial bank ISDA schedules and EMIR documentation.
  • Work with the institutional lender(s) to benchmark/confirm the modelling of the CPI forward start adjustment.
  • A relevant execution protocol was negotiated with the banks, Institutions and FX provider(s) to ensure a clear execution process.
  • A series of dry run pricing exercises were undertaken to establish a history of benchmark pricing.
  • At FC, the IR, fixed rate, CPI and FX hedging were executed at the same time with all parties. This was conducted on one call and was structured to ensure market disruption was kept to a minimum.
  • Competing the IR and FX pricing demonstrated best value for the borrower.
  • Given the number of hedge parties involved a carefully managed execution protocol was essential to deliver a smooth FC process.
  • A detailed history of all benchmark pricing conducted in the lead up to FC was recorded to ensure that hedge parties maintained their agreed execution  levels over mid at FC.
  • Post FC, we provided the client with a written confirmation outlining the hedging strategy undertaken and the various pricing that was agreed. This documentation, together with relevant screen prints, provided a valuable audit trail for the client’s records.

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