Managing the foreign currency rate changes that can impact returns Investors who purchase foreign assets run the risk that movement in local currency rates can reduce the underlying value of their expected/projected return. Many investors seeking to reduce such risks are wary of making large upfront cash outlays as well as potential breakage costs. Chatham Financial can help balance these concerns so that the risk is minimized most efficiently. Benefits of Chatham Foreign Currency Hedging Services Holistic approach: Chatham works with private equity investors to define the right strategy and instruments to support it. Our risk analyses help determine what percent of the investment to hedge, as well as the tenor, timing, and instruments needed to offset currency risks. From strategy and execution to reporting, Chatham analyzes and assesses risk exposure as well as structures and reviews policy to identify…

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Mitigating risk and avoiding dead deal costs When a private equity investor agrees to purchase a company in a foreign currency rather than the currency in which the debt or equity is funded (e.g. investing equity from a US Dollar denominated fund in a JPY asset or raising debt in USD for a CAD investment), the fund runs the risk that, prior to closing, foreign exchange (FX) rate movements will require additional funding. Many investors prefer to lock in the specific equity check required at the time of signing to avoid any surprises at closing. Deal contingent FX hedging allows investors to lock in a specific FX rate. It also allows them to walk away with no strings if the underlying deal does not close. Similarly, the high amount of leverage in these deals also prompts investors to take advantage…

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Foreign Currency Hedging for Corporates As companies expand globally, currency risk can significantly impact both operational results and financial statements. This can stem from mismatching revenue and expense currencies, managing various operational currencies under the same corporate umbrella, or even short-term liquidity needs in particular currencies. Oftentimes, companies may seek out economic exposure to a particular region through investments in assets or operations while also seeking to reduce earnings volatility caused by currency fluctuations. This, in turn, can impact financial reporting results or present real economic risk to the financial stability of the company. That is why multinationals are increasingly focused on quantifying exposure and sensitivity, driving efficiency in hedging programs, and achieving preferred hedge accounting treatment for FX risk management programs. Benefits of Chatham Foreign Currency Risk Management Solutions Practical Impact and Ongoing Support: Whether it’s evaluating a specific…

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The Foreign Account Tax Compliance Act (FATCA) The Foreign Account Tax Compliance Act (FATCA) goes into effect January 1, 2013, and may have an adverse tax impact on certain payments made in derivative transactions.

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