Corporate Case Study: Tracking & Reporting for Hedges Our Client: A global musical instruments manufacturer and distributor who actively manages FX and interest rate risk exposures. Situation: The company was managing over 1,500 derivative instruments in Excel and was applying hedge accounting for more than half of their derivatives portfolio. They were applying a hedge accounting methodology that caused some earnings volatility and wanted to evaluate whether another approach, such as regression for effectiveness assessment and hypothetical derivative method for measurement, could produce better results. The period end process was taking longer than our client wanted, and, unfortunately, it was necessary to enter and maintain every derivative into multiple systems or spreadsheets. The company was seeking to implement a hedging, hedge accounting & derivative reporting solution that would: Ease the administrative burden of tracking and reporting derivative transactions Eliminate risk…

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Corporate Case Study: Interest Expense & Currency Risk Our Client: A software firm with contracts in multiple currencies, a complicated legal structure and unique debt structures. Situation: The company had recently increased leverage from a negligible amount to roughly 50% of its enterprise value in a recapitalization, compounding the currency risk. The company was trying to determine the best way to hedge its exposure to a CAD loan with interest payments based on a USD LIBOR index, as well as how to manage its currency risk across multiple currencies. Summary: Chatham Financial assisted the company in developing a hedging strategy for its debt by explaining the various hedging structures that could be used to create the appropriate hedge of the firm’s interest rate risk. To help the management team obtain an understanding of its currency risk, we worked to isolate…

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Corporate Case Study: Strategy & Accounting Our Client: A global packaging and manufacturing company with over $7 billion in revenues and a complex capital structure. Situation: The company had recently issued fixed rate financing and was considering converting it to variable via a pay-variable, receive-fixed interest rate swap. Management’s objective was to achieve a certain fixed-floating mix, but was sensitive to the earnings impact that could be generated from the changes in fair value of a pay variable interest rate swap. Summary: The company sought our advice regarding the potential application of fair value hedge accounting on the proposed structure. Our analysis not only highlighted crucial issues that hindered the application of the shortcut method (such as the presence of equity-linked options in the hedged bond), but also showed the earnings impact over the life of the hedging strategy, under…

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Chatham expands to new industry sectors with new lines of business serving financial institutions, private equity, and corporate clients.

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Managing hedge accounting for a company can be extremely challenging. Hedge accounting standards under US GAAP and IFRS are very complex. Complying with the requirements takes real expertise in interpreting the accounting standards and understanding the nuances between right and wrong. Chatham’s hedge accounting team specializes in navigating the complexities of ASC 815 and IAS 39, helping to properly align the economics and the accounting of transactions to achieve desired results. The ChathamDirect hedge accounting module incorporates proven hedge accounting expertise with superior user experience. Chatham’s client-tailored hedge accounting solutions are designed to provide clarity while also providing technical consulting, analysis, education and key hedge accounting service.

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Reducing risk of commodity exposures Whether a company’s risks are related to fuel, metals or other materials, hedging commodities continues to gather more attention. Commodity risk is complicated, available tools are advancing, and responsibility for mitigating risk can fall across disparate departments like procurement, treasury and supply chain. With an effective risk management program, companies can consolidate their view of risk and the benefits that can be derived from reduced volatility and improved forecasting. By understanding market swings and correlations, quantifying net exposures, valuing hedges and applying hedge accounting, a more effective risk management strategy can be established. How Chatham helps reduce commodity-exposure risk Comprehensive Approach: Chatham looks at commodity risk holistically, evaluating correlations by commodities and currencies. Because many dynamics are involved in commodities, some companies need greater structure and process in reaching timely decisions. Others need technology applications…

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Reaching the Efficient Frontier of Risk Management March/April 2012, Corporate Finance Review

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