Corporate Case Study: Cross Currency Swaps

Our Client:
A leading European cable net provider.

Situation:
The company had the equivalent of EUR 2 billion of debt and associated interest rate and cross currency swaps. The hedges were nearing maturity and the company planned to float on the EUR debt previously hedged via the interest rate swap but wished to extend the cross currency swap which hedged the company’s high yield USD denominated bonds. The cross currency swap had a negative mark-to-market and the company did not wish to have a cash event upon extension. Multiple banks provided the initial cross currency swaps.

Summary:
Chatham Financial was engaged to assist the company with the hedge restructuring. We contacted the existing hedge providers to determine appetite and expectation of charges. Only two of the existing hedge providers could participate in the restructuring, so we also handled the novation process from exiting providers to those with sufficient appetite and credit approval. To avoid a cash event upon extension, we discussed with each bank the possibility of extending the cross currency swaps at the historic spot rate to avoid the cash event and negotiated more commercially reasonable credit charges.

Outcome:
The banks approved the extension at historic spot rate. Chatham then proceeded with efficient execution in tranches of the cross currency swaps. In addition to facilitating the extension without cash event, Chatham saved the company in excess of EUR 1.2 million.