- Financing in EUR and SEK. EUR facility to be converted into SEK for acquisition.
- A facility allowing flexibility in regards to interest periods 1/2/3/6/12 months.
- Business plan with profitability starting to pick up at the back end of hedging period.
- Put a cost-efficient interest rate hedging structure in place that tied in well with the projected cashflows under the business plan.
- Analysed how interest payment frequency affects pricing of hedging.
- Hedged the FX risk between signing and closing that arose from converting EUR drawdown into SEK.
Both hedging requirements were achieved and we:
- Protected returns throughout the expected life of the asset prior to harvest.
- Kept the hedging costs to reasonable levels – structuring the put spreads over a prolonged period worked well as the hedging requirement minimised our client’s hedging costs and credit line usage.
- The choice of the strike rates on the put spreads allowed our client to tailor the protection to only the level that was needed.
- It avoided the higher cost of outright put options.
- The flexibility to choose the level of protection allowed the fund to manage the upfront premiums in a way that provided a greater volume of protection than would otherwise be allowed.