Private Equity Case Study: Currency Challenges
A large private equity firm executing an acquisition in a developed economy.
A private equity consortium had agreed to acquire a North American company. Due to the state of debt capital markets, a substantial portion of the debt capital structure was denominated in USD with floating rates.
The consortium and company needed to determine the best way to address the currency mismatch between cash flow and interest expense, as well as the optimal way to create a higher percentage of fixed rate debt. Chatham Financial educated the team on the use of cross-currency swaps, created transparency in the execution process of the hedging transactions, and assisted in the negotiation of the key documentation for the derivatives to ensure no hedge counterparty stood ahead of other secured lenders to the business.
The consortium was able to remove the currency mismatch between cash flows and debt service, allowing the company to have certain interest expense despite the significant volatility of the exchange rate. In addition, Chatham’s involvement in the process ultimately saved the sponsors multiples of our fee at execution.