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case study

EUROPEAN PRIVATE EQUITY FUND

Background

Financing in EUR and SEK.

EUR facility to be converted into SEK for acquisition.

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.

Speak to an expert

Benoit de Benaze

Director

E: Benoit.deBenaze@jcrauk.com
T: +44 (0)207 493 3310

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 of our approach

  • 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 creditline 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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