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HEDGING INTEREST RATES 
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I - Main Hedging instruments used in Project finance or M&A transactions
 

  • Hedging interest rate risk

  • The fixed -rate payer swap with immediate start (at financial close)

  • The cap

  • Should you hedge the floor in your loan agreement?

  • Pre-hedging the interest rate risk

  • Forward swap (pre-hedging)

  • Swap option on the fixed-rate payer swap

  • Contingent swap (pre-hedging)

  • What hedging instruments to put in place before all  CP’s are waived
     

II - Valuation principles of hedging instrument

 

  • Market rate curves: real time market data

  • Break-even Rate and Swap valuation

  • Estimation of forward rates and discount curves – Example of pricing

  • Implied market volatilities: real time market data

  • Premium of a cap or swap option: intrinsic value, time value, probability of exercising the option – Example of pricing

 

III - How is the hedging instrument being integrated in the financing documentation ?

  • The FBF or the ISDA framework agreement, long form confirmation, appendix clauses, evolving framework

  • The intercreditor or facility agreement. Access to collaterals to pay off the unwinding costs

  • The specific case of Orphan swaps

IV - Hedging issues related to project financing/Non-recourse financing

  • Hedging policy more or less binding 

  • Hedging represents a significant element in the all in cost of the project. Timing and overall credit costs on the derivatives. (swap margin).

  • The specific case of refinanced loans: Unwinding costs, top-up swaps

  • A lack of banks benchmarking

  • Dry runs and execution process

 

V - Questions and discussion
 

Note that each training session will include a MCQ to validate the knowledge acquired.

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