For a long time, we have been concerned by the common practice in Over the Counter (“OTC”) derivative markets of end users conducting all their hedging activity with a small group of their “relationship” banks.

Corporate finance theory has long established that companies should maximise their Enterprise Value no matter who the shareholders are.

Banks have traditionally provided funding and hedging acting as principals. The financial crisis has critically reduced banks’ appetite for risk, thus often reducing their role in several traditional investment banking functions to that of ‘matched brokers’.

Project Finance & PPP

TradeRisks can assist clients by providing the independent and specialist advice of our experienced Project Finance team. Our Project Finance and PPP services span the typical project lifecycle and include:

Project Finance and Public Private Partnerships (including PFI) can involve a high level of complexity in terms of the modelling, structuring and analysis required in order to deliver a fundable solution.

Frequently, the funding that has been raised to support these projects has been structured in such a way as to bundle together debt funding with interest rate hedging which is often both complex in nature and involves significant value through the long dated nature of the swaps involved. The bundling of loans and swaps has the effect of reducing price transparency and maintaining a lack of pricing competition for swaps, to the detriment of borrowers, investors and where relevant, the public sector. This is illustrated, for example, in the UK PFI market where funders have established a standard execution spread on swaps of circa 30 basis points (from mid-market), which, on a loan-equivalent basis, is comparable to a LIBOR margin of around 350bps for a typical 30-year swap. Not only does this have no resemblance to the underlying loan margin, but it is also an order of magnitude away from the levels that banks will quote on swaps for similar credits under competition.

TradeRisks is able to reduce funding and execution costs by providing borrowers with the transparency and competitive tension offered through direct access to funding from institutional investors and swap counterparties through OTC Exchange.

Financial Advisory and Transaction Structuring »