Termination of an existing interest rate hedge
Hedging and Capital Markets
Private Equity | London
SummaryA recent example of how we successfully advised a European financial sponsor on terminating an existing debt hedge at exit.
- A highly successful exit (more than 3x return) from a European financial sponsor to a strategic buyer.
- The existing debt was fully repaid at company level by the new owner shortly after closing.
- The existing debt, hedged with interest rate swaps, was provided by a pool of banks. All swaps were deep in-the-money (i.e. asset for the company).
- Our client had the right to terminate the interest rate swaps by the banks.
- The client received an un-competitive offer to terminate the swaps.
- We provided independent pricings/valuations for the swaps.
- We analysed termination/x-value adjustment (XVA) charges that were potentially applicable to the trades,
- We negotiated termination costs in line with market practice.
- We co-ordinated the termination process.
- Transparency on XVAs. XVAs are too often passed on to clients, who are charged without much transparency.
- Large savings for the client on the termination costs of the existing hedging instruments (more than 7x Chatham fee).
- Fair and independent termination process for both parties (New owner and the seller).
Contact the author
Please complete the form below to find out more about optimal hedging strategies for private equity funds.
Our featured insights
Semiannual Market and Economic Update
Jackie Bowie and Amol Dhargalkar will host Chatham’s upcoming webinar, providing perspectives on the current global economic landscape and financial events impacting today’s market. Examine ways to mitigate risk and enhance decision-making in the capital markets.
BoE and ECB keep rates on hold, but rate cuts grow more likely
The Bank of England (BoE) voted to keep rates on hold as expected at 5.25%, though one member of the Monetary Policy Committee (MPC) voted for a rate cut, the first vote since the Bank cut rates to a record low in March 2020. Two members voted to hike rates, but a subtle change in the...
Fed maintains rates level while the market looks ahead to easing cycle
On Wednesday, January 31, 2024, the Federal Open Market Committee (FOMC) voted unanimously to hold the fed funds rate at a target range of 5.25% – 5.50%. The FOMC made a few notable changes to its first statement of the year. Importantly, while acknowledging that the Central Bank’s employment and...
Treasury 2024: Opportunities, Priorities, and Trends
How will persistent high interest rates, geopolitical uncertainty, global paradigm shifts, and a rapidly changing technology landscape impact treasury priorities in 2024? Join treasury leaders as they share how they’re preparing now to manage interest rate, foreign currency, and commodity risk...
Fed dot plot vs. historical forward curves
The Fed dot plot is a visual representation of the projections made by each member of the Federal Reserve regarding the Central Bank's key short-term interest rate.
Expert Conversation with Matt Henry and Jeff Blau
Matt Henry, Chatham's Managing Partner and CEO, and Jeff Blau, CEO of Related discuss the real state of CRE, the housing crisis in NYC in both market-rate and affordable housing, the modern office as an ecosystem, and more.
Major central banks hold rates steady; markets price in rapid cuts
The Bank of England (BoE) held rates for a third consecutive meeting at 5.25% with a vote of 6–3. The bank rate remains at the highest level since the financial crisis, amidst the backdrop of inflation more than double the Bank’s target and a stagnating economy. The latest data shows the U.K....