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case study

RESTRUCTURE OF LENDER OPTION BORROWER OPTION FACILITY

Background

Assisted a Registered Provider client with the restructure of a structured LOBO loan facility (a long-dated loan facility with a series of derivatives embedded into the underlying fixed rate loan).

These loans typically have a significant negative mark-to-market and are deemed by many as no longer fit for purpose given the current low interest rate environment.

Speak to an expert

Michael Leslie

Director

E: Michael.Leslie@jcrauk.com
T: +44 (0)207 493 3310

Our approach

Put together a proposal for the restructure of the instrument and reviewed the financial counterparty’s pricing, rates and the termination costs.

Negotiated with both the lending and capital markets/treasury divisions of the bank to ensure that the facility could be restructured within acceptable cost parameters – both up-front and ongoing.

Negotiated and structured counter proposals to present to the bank, including how the termination costs should be met and managed.

Presented at board meetings to ensure a full understanding of the restructure and to demonstrate the cost/benefit analysis of their decision.

Managed the execution process and agreed all the supporting documentation for the revised hedging instrument.

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Our approach

  • JCRA had already undertaken a restructure of other interest rate hedging instruments for this client with the aim of simplifying the hedging portfolio; to minimise the volatility and potential refinancing risk associated with some complex derivatives.
  • The objective of this restructure was to take advantage of favourable market conditions to ‘buy-back’ the bank optionality within the LOBO, thereby removing re-pricing/refinancing risk, leaving the borrower with a ‘vanilla’ fixed rate loan. This had the added benefit of eliminating potential reporting volatility associated within a complex financial instrument, prior to the introduction of FRS102.

Benefits of our approach

  • The borrower successfully achieved the restructure of the LOBO on a cost effective basis within the critical timetable.
  • Provided independent input and transparency for the structure and pricing of the termination of the instrument.
  • Vfm and governance objectives were met through supporting management in their case for restructuring made to the board.
  • Reconstructed a complex loan into a vanilla fixed rate loan. Delivering treasury benefits as the re-pricing and refinancing risk was removed and the derivative volatility was reduced.

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How can we help you

Have you got a question about how you hedge your financial risks, or structure and arrange your debt?

Find out how we can help you by contacting us today.

 

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