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 ?

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• 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

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

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• 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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