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case study

PROJECT FINANCE CLIENT SPONSOR

Background

Worked with the project finance client sponsor to protect the economics of the deal.

Set up hedging as soon as possible after winning the bid.

Ran the hedging processes to ensure competitive pricing – both on entry and termination.

Reviewed the hedging documentation.


Transaction parameters:

Private equity fund in a bidding process for a real asset.

Multi-billion USD financing was provided by eleven lenders through a Term Loan, a Bridge Facility and a Capex Loan. Nine lenders were eligible to be hedge providers with pro rata sharing agreed.

The sponsor was keen to hedge the current financing but also future refinancings though capital markets.

A hedge was to be set up as soon as possible after winning the bid – even before financial close – to protect the economics of the bid against rising rates

Speak to an expert

Francesco Podesta

Associate Director

E: Francesco.Podesta@jcrauk.com
T: +44 (0)207 493 3310

Our approach

Credit spread auction process

Hedging strategy

Deal contingent hedging

Syndication process

Competitive terminations

Protected clients from clauses in the financing documentation

Our approach

  • Credit spread auction process – ran an auction process among the lenders to ensure ‘at market’ pricing on the swap credit spread.
  • Hedging strategy – reviewed the financing model and devised a hedging strategy that not only covered the financing but also protected the interest cost of future refinancings.
  • Deal contingent hedging – benchmarked banks to assess capabilities and pricing on deal contingent hedging (DCH) and entry into aDCH hedge a few days after the bid was won with a select group of banks. Financial close only occurred two months later.
  • Syndication process – ran a syndication process post financial close which ensured other lenders in the financing received their pro rata share.
  • Competitive terminations – fair and transparent terminations of hedges following refinancings with fixed rate bonds.
  • Documentation – protected clients from clauses in the financing documentation and the ISDAs that could impact the deal negatively in the future (hidden costs) and ensured the correct hedging strategy documentation was in place.

Benefits of our approach

  • Significant reduction in swap credit spread compared to initial pricing offered by lenders.
  • Bespoke hedging strategy meeting the banks’ and the sponsor’s requirements.
  • Transparent and ‘at market’ pricing on execution of the deal contingent hedging through prior benchmarking and execution supervision.
  • Fair and transparent pricing on terminations benefiting from vigilant approach on hedge documentation.
  • Saving executive time for the sponsor by:
    - Co-ordinating implementation of hedging and subsequent syndication.
    - Ensuring accuracy of hedge documentation.

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How can we help you

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