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FX hedging for a European private equity fund
Success stories

FX hedging for a European private equity fund

Background
  • 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.
Our Approach
  • 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.
Benefits

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.

Specifically:

  • 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.
 

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Contact us

If you need hedging or debt advice or would like to speak about how we could help your business, please get in touch.