Centrus support InfraRed with the implementation of CPI hedging
Centrus supported InfraRed Capital Partners (InfraRed) with the structuring, pricing and execution of CPI hedging in relation to a UK offshore wind project (the Project).
The Project benefits from a CPI-linked contract-for-difference provided by the Low Carbon Contracts Company (owned by UK Govt).
Centrus supported InfraRed in all aspects of implementing the hedging strategy that achieved all stakeholder objectives, retained future flexibility and enhanced InfraRed’s risk management capabilities now and in the future.
We worked very closely with the InfraRed team through the process, providing support in all aspects of the transaction including:
- Request for proposal process across relationship banks and the wider market
- RPI-CPI wedge pricing
- Negotiating ISDA documentation
- Coordination and benchmarking of the execution process
This resulted in the successful implementation of a structured hedging strategy meeting all stakeholder objectives, maintaining strong banking relationships, mitigating risks and ensuring future flexibility for a continued growth plan.
Key aspects where Centrus added value:
- Analysing hedging strategies for cost/return metrics and simulations at various exposure levels
- Assessing various credit structures from pricing, covenant and documentation perspective to support in determining the appropriate structure for the transaction
- Working with all stakeholders (client, banks, legal advisors) to implement the hedging
- Developing and running a competitive process to ensure deliverability and flexibility to achieve key objectives
Ben Smith, Portfolio Management – InfraRed Capital Partners Centrus supported us through this CPI hedging transaction, they actively managed the process from start to finish and their analysis helped us build robustness into the cashflows and real equity returns under different inflation scenarios. The team used their significant expertise to assist with structuring the hedging, running a competitive pricing process and were on hand to deliver a transaction that met our objectives.
Mark Taheny, Director – Centrus Through this transaction, InfraRed have managed to afford themselves significant downside protection against adverse market movements, and as a result greater certainty around investment return. Recently we have seen a material pick up in pro-active risk management in the face of increased volatility across financial markets.
Release Date: 17th March 2022