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Case Study

Hedging FX risk in a cross-border merger

Date:
August 1, 2024

Summary

A multinational manufacturing company faced significant FX risk during its cross-border deal close window, while also seeking to understand and address capital structure implications of potential funding and risk management strategies.

Company goals

  • Mitigate the FX risk identified in the sign-to-close period, with the flexibility to account for deal close uncertainty
  • Evaluate the suite of alternatives for hedging while communicating them succinctly internally
  • Manage bank counterparty share of wallet while minimizing hedging costs
  • Understand holistic capital structure implications of hedging strategies

Results

  • Identified FX risk based on purchase price, funding sources and cash on hand, and quantified potential cash impacts under various rate scenarios
  • Identified best-fit hedging strategy given company goals and fact pattern
  • Executed strategy to minimize FX risk while rewarding key bank partners with deal allocation and associated share-of-wallet
  • Integrated post-close capital structure goals into funding and hedging considerations

Chatham Financial corporate treasury advisory

Chatham Financial partners with corporate treasury teams to develop and execute financial risk management strategies that align with organizational objectives. Our services include risk management strategy development, risk quantification, exposure management (interest rate, currency, and commodity), outsourced execution, technology solutions, and hedge accounting. We work with treasury teams to develop, evaluate, and enhance their risk management programs and to articulate the costs and benefits of strategic decisions.

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Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

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