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wind farm
Case Study

UK offshore wind farm refinancing

Summary

Chatham worked alongside a group of sponsors and their financial adviser to define an optimal hedging strategy for new debt, as well as managing the existing hedges.

Background

  • A consortium of three sponsors of a UK offshore wind farm was looking to refinance its stake.
  • The sponsors’ existing debt and corresponding hedges were held with six banks.
  • The sponsors were planning to refinance with seven new banks.
  • Chatham worked alongside the group of sponsors and their financial adviser to define an optimal hedging strategy for the new debt, as well as managing the existing hedges.
  • The sponsors were also interested in hedging their inflation linked revenues.

Our approach

  • Conducted a cost analysis for breaking existing out-of-the-money interest rate swaps vs restructuring the existing swaps and novating them to the new hedge counterparties.
  • Provided information on the hedge accounting implications of each strategy.
  • Recommended the overall optimal IR hedging strategy, which was to novate and restructure the existing hedges.
  • Competed credit spreads between the seven new banks.
  • Assisted in appointing a sole hedge coordinating bank.
  • Benchmarked mid-market levels to ensure fair pricing.
  • Chatham evaluated the feasibility of entering into a hedge for the project’s inflation linked revenues.

Benefits

  • The refinancing of the project was successful and achieved the objectives required by the sponsors.
  • Smooth financial close and novation of the interest rate swaps occurred on time.
  • The sponsors achieved competitive execution, competitive credit pricing and a substantial x-value adjustment (XVA) rebate, negotiated by Chatham.
  • Sponsors avoided paying any break costs on the existing hedges.

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Disclaimers

This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.