Hedging advice for the Rijkswaterstaat A16 road project
Hedging and Capital Markets
Infrastructure | London
SummaryA case study on how Chatham advised a EUR1B road project with four debt providers on optimal hedging solutions.
- A EUR1B project to strengthen an embankment, build new lock gates, and install new drainage pumps along an iconic 32km causeway which connects North Holland to Friesland.
- The project had three bidding consortia submitting best and final offer (BAFO) funding solutions. Each consortia’s BAFO financial model involved debt, either on an institutional or commercial bank basis, plus lending from the European Investment Bank (EIB).
- Our objective in this project was to ensure bidding consortia priced their respective hedging inputs consistently and correctly.
- Chatham’s role at the pre-preferred bidder stage was to ensure each bidder was pricing its inputs and debt structure correctly whilst also assessing other aspects of the proposed funding solution.
- Four international banks provided the total debt with only three of these four providers swapping the floating-rate debt for fixed rates at financial close.
- Once we had established the relevant debt profile, Chatham worked with the individual consortia lenders to ensure the basis for the pricing was ‘at market’ on a pre-defined static yield curve, thereby enabling each submission to be compared on a like-for-like basis.
- Market pricing, execution spreads, credit, and undisclosed margins were also ascertained.
- The consortia were asked to agree in principal the execution protocol to be used at financial close, plus proposed hedge execution strategies, and costs to be used should their submission be successful.
- Chatham ensured that no errors were made in any of the bid submissions’ hedge pricing.
- By benchmarking each of the bidder’s financing solutions at the pre-preferred bidder stage, Chatham was able to negotiate competitive pricing for the execution and credit spreads applicable to the swap(s) well in advance of financial close and whilst there was still competition to be mandated for the concession.
- Chatham coordinated the execution process at financial close (FC). Prior to FC, Chatham, along with the relevant public authority and winning consortia banks, conducted a series of dry-run exercises to provide transparency to the parties involved, and ensured that pre-agreed pricing was maintained.
Contact the author
Please complete the form below to find out more about the topics discussed in this case study.
This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.
Our featured insights
Expert Conversation with Matt Henry and Rob Kaplan
Matt Henry, Chatham's Managing Partner and CEO, and Rob Kaplan, former President and CEO of the Federal Reserve Bank of Dallas, discuss the economy, alternative capital sources, interest rates, and more.
BoE holds rates steady again while ECB pauses record run of hikes
The Bank of England (BoE) kept rates on hold at 5.25% for a second consecutive meeting today, as it attempts to balance a weakening economy with inflation that is still measuring three times its target. The Bank's updated forecasts show medium-term inflation slightly higher than in August's...
Fed holds rates steady while noting tighter financial conditions
On Wednesday, November 1, 2023, the Federal Open Market Committee (FOMC) voted unanimously to hold the fed funds rate at a target range of 5.25%–5.50%. Today's pause represents consecutive FOMC meetings with no rate change, having hiked in 11 out of the last 14 prior meetings. The most notable...
Capital Markets Sentiment Report
This report’s data comes from five poll questions answered during a live Chatham webinar held on September 21, 2023, hosted by Amol Dhargalkar and Jackie Bowie. We polled over 1,500 respondents spanning various industries, including commercial real estate, corporates, financial institutions, and...
Term SOFR – daily SOFR divergence
Term SOFR is an index rate frequently used in floating-rate loans and notes. It is published by the Chicago Mercantile Exchange (CME Group) in tenors of one, three, six, and 12 months and reflects market expectations for spot SOFR (an overnight rate) for that given tenor. This piece examines...
Chatham Financial announces CEO transition effective January 2022
Matt Henry named the next Chatham CEO
Refinancing Canadian renewables projects post PPAs
Chatham's Hugh Sutcliffe highlights the pitfalls and advantages that financial sponsors face when considering a refinancing of their renewable energy assets.