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HELP!!! about Interest Rate Risk Management Emerald Sport Ventures (ESV) is a newly established business investing in US sports franchises that are currently in difficult

HELP!!! about Interest Rate Risk Management

Emerald Sport Ventures (ESV) is a newly established business investing in US sports franchises that are currently in difficult financial circumstances.

ESV is funded by a group of wealthy Irish investors who have guaranteed the debts of the new business, which is borrowing from a range of banks to fund its sports investments.

The business has a borrowing facility of USD 500 million in total, comprising of loans from 10 different banks of USD 50 million each. It draws down the loans as it needs them when each investment is completed.

The business expects that it will drawdown some of the loans in the following timeframe:

End of July USD 60 million End of September USD 100 million End of December USD 40 million

The Finance Director thinks that it the remainder would then be drawn down in equal instalments of USD 30 million every 3 months. image text in transcribed

The income from these investments is tied to the performances of the US sports franchises in which they invest, so the investors wish to keep the borrowing in USD to reduce foreign exchange risk.

However, they know very little about the US economic outlook and the prospect for US interest rates for the next 12 to 24 months.

They want to minimise their interest rate costs as they do not expect the investment will start to generate significant income within the next two years or so.

They have hired you to manage the treasury aspects of the business. What interest rate risk management strategy would you propose, based on the objectives of the investors and your view of US markets?

USD Swap Rates (HELP!!! about Interest Rate Risk Management) LIBOR USD Rates Overnight 1 Week 0.1805% 1 Month 0.6728% 2 Months 0.9534% 3 Months 1.1090% 6 Months 1.1025% 9 Months 1.0300% 12 Months 0.9818% 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 8 Years 1.25% 1.28% 1.35% 1.40% 1.70% 1.90% 2.00% 2.10% 2.50% 2.50% 9 years 10 years USD Swap Rates (HELP!!! about Interest Rate Risk Management) LIBOR USD Rates Overnight 1 Week 0.1805% 1 Month 0.6728% 2 Months 0.9534% 3 Months 1.1090% 6 Months 1.1025% 9 Months 1.0300% 12 Months 0.9818% 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 8 Years 1.25% 1.28% 1.35% 1.40% 1.70% 1.90% 2.00% 2.10% 2.50% 2.50% 9 years 10 years

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