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The Issue


Our client was a JV between ADWEA, TAQA and a consortium of foreign investors. Prior to engaging Marisk, the Company's debt was 100% floating rate partially hedged to fix at circa 5% across eleven swaps with five international banks for a total notional close to $2bn.




We were appointed as independent hedging adviser to work with the client and the debt syndicate arrangers to achieve the following objectives:


  • Compile a hedging strategy which both met the hedge requirements of the loan CTA, cost effectively incorporated the existing hedges and which would accommodate:


                             - Lender’s 75% minimum hedge ratio requirement

                             - Comply with the hedging conditions of the Facility Agreement

                             - Hedge providers required to meet minimum credit ratings levels  


  • Recommend the interest rate hedging product – its term, quantum and effective rate paid – in the context of the current market environment and different interest rate scenarios


  • Carry out ongoing benchmarking exercises with hedge counterparties to ensure competitive pricing


  • Develop an execution strategy to achieve best market execution, while allowing relationship banks the opportunity to participate


Our Approach


The existing hedging was reviewed in the context of the requirements of the loan CTA and the business plan to determine the most appropriate restructuring of the existing hedging. The three alternatives were:


  • Blending all the existing hedging into a new hedging strategy

  • Retaining the existing hedging and implementing additional forward-starting hedging

  • A combination of the two


We produced a brief report which outlined three potential hedging strategies that met with the objective set out and our recommended hedge strategy. The report contained a description of the hedge strategies, clear explanations of pros and cons, indicative market pricing and scenario analysis incorporating different interest rate environments.


  • Utilise Marisk’s extensive market knowledge to approach a number of known third party hedge providers meeting the minimum credit rating for indicative pricing.

  • Monitor hedge providers' credit ratings

  • Recommend a preferred hedge counterparty based on the indicative pricing received and our experience regarding their ability to complete the transaction in a timely manner


The Outcome


By working together with the client, the consortium and the banks, Marisk were able to achieve the following:


  • Bespoke hedging strategy to meet the Company’s objectives

  • Transparent and ‘at market’ pricing – significant improvement on initial pricing offered from hedge counterparties

  • Clear understanding of the hedge strategy

  • Regular market updates which kept the client abreast of market movements and allowed tweaking of the hedge strategy accordingly









Water & Power (IWPP) - Design of Optimal Interest Rate Hedging