Our role in the process was to advise manage, benchmark and execute the IR, FX and CPI hedging risk contained in the project. Given the diverse mix of lenders, debt structures and inherent financial risk, it was a key requirement to demonstrate a clear and competitive process.
The project was a landmark transaction in the renewable sector with multiple funding sources, including a commercial bank syndicate, institutional fixed rate and institutional inflation linked debt. There were also multi-currency construction costs to hedge back into the base currency together with on-going operational foreign exchange exposure and a tranche of CPI linked debt that was provided on a CPI linked basis. The client was keen to offer all lending banks/hedge providers the opportunity to compete for the hedging and the FX. There was also a requirement to ensure that the hedge pricing and process was transparent. Hedge effectiveness reporting of the FC hedging was also required post execution.
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All interest rate and FX hedge execution roles were competed among the relevant interested and qualified parties to ensure a competitive process resulted
Commercial bank hedging was split between an execution bank fronting the majority of the syndicate banks
Novating down the pro-rata hedge positions post financial close, plus two additional institutional lenders who provided fixed rate/CPI linked debt
The total debt was structured into four tranches and split between three providers including a CPI tranche
The required FX hedging was divided up between three of the commercial bank lenders and executed in two separate tranches
A series of dry run pricing exercises were undertaken in the run up to FC to demonstrate that pricing reflected the agreed execution pricing and process
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