Welcome to this ACT webinar - Association of Corporate Treasurers post-low interest... ·...

Welcome to this ACT webinarThe post-low interest rate world –are you ready?

8 March 2018 | 12.30-13.15 GMT

@actupdate#ACTwebinar

Sponsored by

Interactive widgets

Please take a minute to familiarise yourself with the widgets on your screen. They can be moved around the screen and maximised/minimised to suit you.

Click on the help widget if you experience any technical difficulties during the webinar.

Download resources during the webinar by clicking on this widget.

Submit your questions to our speakers throughout the webinar by using the Q&A widget.

Please take a few minutes at the end of the webinar to provide your feedback.

Follow us on twitter at @actupdate and tweet live during the webinar using #ACTwebinar.

Agenda

IntroductionSarah BoyceAssociate Policy & Technical Director, ACT

PresentationsSvenja Schumacher, Manager, Risk Management Advisory, Chatham Financial Europe

Karolina Windys, Director Global Regulatory Services, Chatham Financial Europe

Katherine O'Brien, VP Treasury, Dubai Aerospace Enterprise

Panel discussion


Presentation

Katherine O'Brien VP Treasury Dubai Aerospace Enterprise

Svenja SchumacherManager, Risk Management AdvisoryChatham Financial Europe

Karolina WindysDirector Global Regulatory Services Chatham Financial Europe

5

8th March 2018

Practical aspects of interest rate execution

6

Svenja Schumacher

Risk Management Advisory

Chatham Financial

Katherine O’Brien

Vice President Treasury,

Dubai Aerospace Enterprise

Karolina Windys

Global Regulatory Advisory

Chatham Financial

Today’s speakers

7

Introduction

Considerations for interest rate execution

Pre- and post trade documentation and regulatory aspects

Q&A

Today’s Agenda

8

Introduction



Q&A

Today’s Agenda

9

Chatham at-a-glance

Corporates▪ Belmond ▪ CRH▪ VEON▪ British Land▪ Ferguson

▪ Hyperion Insurance▪ eir▪ Dubai Aerospace

Enterprise

▪ Bain ▪ JPM Asset Mgt▪ Blackstone ▪ Morgan Stanley▪ Carlyle ▪ Oaktree

Private equity

Financial institutions▪ Amex ▪ Santander▪ Comerica ▪ Western Union▪ Discover ▪ Zions Banc.

▪ Brookfield ▪ Hilton Hotels▪ Forest City ▪ Simon Prop.▪ Hines ▪ Starwood

Real estate

Expertise

30 millionValuations per year

620,000Journal Entries per year

Scale

500 billion$ of hedges executed per year

Derivatives experts▪ 25+ Years, 500+ Employees

Hedge accounting ▪ 35+ Accountants from Big 4 and FASB staff

In-house technology ▪ 150+ Technologists on staff

2,000clients

10

Chatham Financial – corporate solutions

Hedging strategy& execution

Hedge accounting

Derivative & debt valuation

Strategic risk assessment

2000+ clients globally, including 500+ accounting clientsTransaction management of $500 billion of hedges annually

Derivative regulatory compliance

Legal (ISDA)

Simplifies Complexity

© Dubai Aerospace Enterprise

DAE at a glance

~$10bn ~ 70 lenders

across 16 countries

Scale competitor (1) $14bn+of assets

World class platform 30+years of track record

~140 people (5)

across 6 locations

1. As of Q3 2017. 2. Combined fleet included owned, managed and committed aircraft.

3. Weighted by net book value of the owned and managed aircraft only

4. Includes managed aircraft

5. Excludes DAE Engineering

6. Includes consolidated ICD ownership

55countries of client presence

Long-standing

global customer

relationships (4)

113airline customers

Balanced portfolio (3)

55%Narrow bodies

39%Wide

bodies

6%ATR 72-600

1

2

3

4

5

Strategic, long-term

ownership~95%

owned by investment corporation of dubai (6)

6

11

384 aircraft (2)

combined fleet

Based in DIFCrobust legal framework

Globally diversified funding4

34%Asia

Pacific

33% 19%MEASA Europe

14%Americas

© Dubai Aerospace Enterprise 12

DAE | Historical financial highlights

Note - Selected data above

• YTD 2017 results - results for the nine months ended 30 September, 2017

• Results of AWAS effective from 17th August, 2017 to 30 September, 2017

• All figures are rounded for presentation purposes

$2,768m $3,083m

$10,108m

Dec 2015 Dec 2016 Sep 2017

$4,863m $5,233m

$14,911m

Dec 2015 Dec 2016 Sep 2017

$230m $245m

$654m

Dec 2015 Dec 2016 Sep 2017

$1,573m $1,678m

$3,066m

Dec 2015 Dec 2016 Sep 2017

Total loans and borrowings

Total assets Total equity

Operating cash flow

13

Introduction



Q&A

Today’s Agenda

14

How have interest rates developed in the past years?

-1%

0%

1%

2%

3%

4%

5%

6%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22

Historical 3 mo. EURIBOR fixings and forward curves

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22

Historical 3 mo. GBP LIBOR fixings and forward curves

15

How does this environment affect hedging?

More attention to interest rate movements and hedges

Greater focus on forward hedging

Concerns about floors in financing

Floors

Forward hedging

IR Focus

16

Policy implications

Strategy

Operationalise

Foundation

Phase I

Phase II

Phase III


DAE | Financing

Financing & hedging

Debt split is ~ 65% fixed, 35% variable, policy is to be >90% ‘matched’ / ‘hedged’

Derivative products used:

Natural hedges

Vanilla interest rate swaps

Interest rate caps

Forward-starting cancellable swaps

Interest rate swaptions

FX forwards

Large-ticket transactional timing exposures are the most challenging as we seek to

offset any exposure but must maintain / stay within transaction economics.

18

Aligning loan terms and interest rate execution

• By switching from a 6 month index to a 1 month index (if cash liquidity allows this), there can be savings of approx. 11bps per year on a 5 year swap with bullet notional. (6M: 1.3394%, 1M: 1.2285%)

0.40%

0.90%

1.40%

1.90%

Year 1 Year 2 Year 3 Year 4 Year 5

Comparison 1M vs 3M vs 6M GBP LIBOR

1 Month GBP LIBOR 3 Month GBP LIBOR 6 Month GBP LIBOR

0

10

20

30

40

50

60

70

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18

GBP LIBOR basis

6m vs 1m GBP LIBOR 6m vs 3m GBP LIBOR 3m vs 1m GBP LIBOR

19

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0.64% 0.82% 1.00% 1.18% 1.36%

Swap Only

Swap + Floor

Floors in Financings

Cost (missed benefit on interest expense) of 1% Floor on

GBP LIBOR means the applicable Screen Rate as of the Specified Time for GBP and for a period equal in length to the Interest Period of that Loan and if that rate is less than 1%, GBP LIBOR shall be deemed to be 1%.

“”

100m GBP Loan 100m EUR Loan

3Y £670k €3.3m

5Y £1.4m €4.6m

Risk Management Challenges

Inte

rest

Pay

able

Below 1% Rates Above 1% Rates

All Fixed


DAE | Financing

Documentation - Negotiation Points

On recent transactions some of the key points for discussion:

Understanding what is the Lender’s funding cost

Swap / Fixed rate Credit Spreads

Market Disruption language

LIBOR Floors (getting parallel treatment and language across both the loan

and swap documents)

Aligning on pricing – Mid v Offer

Regulatory reporting – Dodd Frank, EMIR

21

Execution mode: negotiation vs. auctionA spectrum of execution methods can be used to balance competing priorities for any given trade

Banking relationships

Pricing efficiency

ISDA/CSA documentation

COMPETITIVEAUCTION

DIRECT NEGOTIATIONCounterparty diversification

Transparency

Outsourcing needs

Regulatory compliance

22

Introduction



Q&A

Today’s Agenda

23

ISDA documentation: important commercial aspects

ISDA master agreement

Schedule to the ISDA master agreement

Short form trade confirmation



Credit support annex

Long form trade confirmation

24

ISDA documentation: important commercial aspects

Cross default

• Specified entities & credit support providers

• Cross acceleration

• Administrative carve out

• Threshold amount

• Specified indebtedness

Credit event upon merger

• Specified entities & credit support providers

• Materially weaker

• Designated event

• Merger

• Change of control

• Recapitalisation

Additional termination events

• Loan agreement is prematurely accelerated

• Loan agreement is partially or fully prepaid, repaid and/or cancelled

• Loan agreement is terminated or no longer exists

• Insolvency event

• Change of control

• No longer a lender

25

EMIR – requirements and proposed changesTimely confirmationsDerivative contracts must be confirmed by counterparties within the following deadlines:

• For FCs and NFC+s: the end of the next business day

• For NFC-: the end of the second business day

Portfolio reconciliation Counterparties required to agree before trading how portfolios regularly will be reviewed to identify any disagreements regarding key terms or valuations and reconciled. The reconciliation process must cover key trade terms and the valuation. Frequency of reconciliation:

ReportingTrades must be reported to an authorised trade repository within T+1. More that 60+ data fields per trade must be reported: common data (transactional data) & counterparty data (status, domicile, etc.). a party can accomplish reporting by:

• Reporting to a trade repository directly

• Delegating to a counterparty

• Delegating to a third party

FCs and NFCs+:

• Each business day > 500 trades

• Once per week 51-499 trades

• Once per quarter 50 or less

NFC-s:

• Once per quarter > 100 trades

• Once per year < 100 trades

Proposed revisions to EMIR include:

• A new reporting regime for NFC-s that allows for a delegation of reporting to the FCs

• An exemption of Intragroup transaction reporting in cases where one of the counterparties is an NFC-

26

MiFID II: Impact on Trading

Pre-Trade obligations

• MIFID II require Investment Firms to obtain specific consents from clients

• MIFID II also requires Investment Firms to make more disclosure to their clients

• MiFID II imposes additional obligations on Investment Firms that are required to be captured in revised Terms of Business between the Investment Firm and the client.

• MiFID II establishes four general client classifications :

• eligible counterparties

• professional clients

• opt-up professional clients and

• retail clients

Overview

• MiFID II (Market in Financial Instruments Directive II) governs provision of investment services and increase transparency in the market place.

• MIFID II went into effect on 3 January 2018. MIFID investment firms (a company’s regular occupation or business must be the provision of one or more investment services to third parties) are directly subject to MIFID II. Treasury Units are exempted from the scope of MIFID II.

• Despite not being directly subject to MIFID II, corporates will have increased indirect compliance obligations to satisfy dealers’ MIFID II compliance obligations .

LEI (Legal Entity Identifier) requirement

• All entities trading derivatives will now be required to obtain and maintain an LEI.

27

Introduction



Q&A

Today’s Agenda

28

Questions?

www.ChathamFinancial.com

Svenja Schumacher

Manager, Risk Management Advisory

• [email protected]

• T: +44 20 7766 5734

Karolina Windys

Director, Global Regulatory Services

• [email protected]

• T: +44 20 7766 5755

LondonBurdett House, 4th Floor15-16 Buckingham StreetLondon WC2N 6DUUnited Kingdom+44 20 7766 5700

Philadelphia235 Whitehorse LaneKennett Square, PA 19348 United States+1 610 925 3120

Denver7926 S. Platte Canyon RoadLittleton, CO 80128United States+1 720 221 3500

Krakowul. Kotlarska 1131-539 KrakówPoland+48 12 349 8800

Singapore20 Cross StreetChina Square Central #02-16/17Singapore, 048422+65 6507 0680

MelbourneL18, 101 Collins StreetMelbourne, Australia, 3000+61 3 9653 7350

Panel discussion

ChairSarah BoyceAssociate Policy & Technical Director, ACT

Panellists

Katherine O'Brien, VP Treasury, Dubai Aerospace Enterprise

Svenja Schumacher, Manager, Risk Management Advisory, Chatham Financial Europe

Karolina Windys, Director Global Regulatory Services, Chatham Financial Europe


Closing remarks

Sarah BoyceAssociate Policy & Technical DirectorACT


FORTHCOMING EVENTS

treasurers.org/events

ACT Smart Cash Management Conference 14-15 March 2018 | London

ACT Treasury Network – New York26 March 2018 | New York

ACT webinar: MMF reform – treasury risks, impacts, actions19 April 2018 | Online

ACT Annual Conference 15-16 May 2018 | Liverpool

ACT Treasury Forum14 November 2018 | London

ACT Annual Dinner 14 November 2018 | London

Thank you for listening

Please take a few moments to provide your feedback by selecting the icon.


Sponsored by

Welcome to this ACT webinar - Association of Corporate Treasurers post-low interest... ·...

Documents

Transcript of Welcome to this ACT webinar - Association of Corporate Treasurers post-low interest... ·...