Managing interest rate risk as a factor of ROI
Significant debt at a portfolio company increases the risk of interest rate volatility. This can significantly impact EBITDA. Hedging interest rate exposure helps offset this risk and reduces the potential of earnings volatility due to rate fluctuations. Chatham Financial assists clients in managing such exposure as well as the impact on returns by such potential business events as IPOs and re-financings.
How Chatham helps manage the risk of interest rate fluctuations
- Risk assessment and analysis: Chatham works with sponsors and their portfolio companies to determine optimum hedging strategies. We analyze potential unhedged exposure and evaluate hedging alternatives and breakage scenarios. Our deep insight into market trends includes preferred structures, tenor, and hedge ratios.
- Hedge accounting treatment: Hedge accounting treatment is not an afterthought for Chatham. Our deep expertise in the standards under ASC 815 (formerly FAS 133) and IAS 39, enables us to advise on optimal economic hedging structures plus the most appropriate and favorable accounting treatments. Evaluating the impact of hedge accounting on various hedging strategies prior to the transaction helps ensure the best possible accounting outcomes.
- Comprehensive and competitive execution process: Our wide range of hedging execution capabilities include negotiating ISDA documentation with potential counterparties, assistance in meeting regulatory requirements, and driving competitive tension to achieve efficient market and credit pricing. In working with private equity firms around the world, we understand the need for thorough analysis, turnkey execution, and a robust and proven process that covers the financial risks of a new acquisition.