A financial sponsor engaged PMC to help one of its highly leveraged portfolio companies manage its interest rate exposure extending over several years.
- At the point of the initial financing, develop a strategy and assist the company to enter into interest swaps that hedged 50% of its debt on an amortising profile;
- Advise the company to review hedging alternatives in an adverse credit environment and given a new credit facility that included a LIBOR floor;
- Assist with the design and the implementation of a hedge structure that capped the client’s interest rate risk at the same strike rate as its LIBOR floor, thereby creating fixed rate debt;
- Advise and help execute the implementation of a forward starting cap structure that extended the company’s interest rate hedge for a further 2 years.
Results & Recommendations
By coordinating the layering of its hedging over an extended period of time, we were able to manage the client’s exposure to rising interest rates in an economic way and in a manner that successfully addressed these requirements within a much more adverse credit environment.