Many of our clients, such as project, utilities, telecom, industrial, oil & gas, real estate and hospitality industry companies and governmental agencies are subject to numerous financial and operational risk exposures. Many of these risks such as certain types of short-term floating interest rate, inflation, foreign currency exchange and input and output commodity price fluctuation risks are examples of financial and operational risks that may be cost-effectively mitigated through application of hedging strategies.
DCS advisors provide expert comprehensive advice to our clients in formulating financial and operational risk management plans and developing and executing an effective risk hedging strategy and programs. The first step in this procedure is to conduct financial modeling of our client's overall existing or pro forma financing structure (including all tranches of equity and debt), revenue and expense items categorized by pricing dependencies (inflation, foreign exchange rates, commodities pricing, etc.); and asset value returns (unrestricted and restricted cash and short term investments, medium- and long-term asset categories.
The next step will be to implement "asset-and-liability-matching" for our client to the greatest extent possible. This ALM strategy will attempt to align, for example, short-term same currency liabilities (floating rate debt) with same currency short-term assets (floating short-term interest rates), same currency inflationary revenues with same currency inflationary expenses, etc. In many cases, after the ALM model is optimized, there may still be significant risk exposures (such as to currency risk, floating interest rate risk, inflation, etc.) At this stage we will asset our client in developing and executing their hedging strategy.
Within the hedging strategy, will analyze the estimated cost of hedging our clients net risk positions after ALM is accounted for. In situations where clients assets, liabilities, revenues and expenses are denominated in predominantly major word currencies, and floating interest rates and inflationary revenues and costs can be approximated by major world indices, and input and output commodity prices can be approximated by futures and forward swap prices, then most of these types of risks elements are likely to be ones that can be effectively and cost-efficiently hedged. In the case that certain currency denominations are not readily related to readily traded international currencies, if local inflation and commodity pricing elements is nor correlated with world markets, then it will be unlikely that our client will be able to effectively hedge these risk elements.
As part of our risk analysis, we will use financing models to evaluate the potential value of risk exposures under a variety of sensitivities and stress cases. Based on these sensitivities, our clients can decide as to the appropriate levels of unhedged risk exposures. In cases of project of corporate financing, lenders or credit rating agencies, will also have certain criteria as to appropriate levels of unhedged risk exposures. Based on the risk levels and amount that require hedging, we will develop the hedging program to include an optimal mix of swaps and other derivative instruments. In general, the following types of contracts will be most applicable for our clients:
DCS also assists its clients in the execution of the hedging strategy. Swaps, caps, collars, floors, options and forwards are all "over-the-counter" (OTC) trades and these instruments are not traded on exchanges. Therefore DCS advisors can also serve our clients as the structuring and bidding agent for all of these types of OTC trades. Our general approach is to require several qualified and interested derivative counterparties to compete through a limited auction process. If our client's hedging strategy involves futures trades, which are exchange traded, our client will generally need to utilize the services of a licensed and registered futures broker-dealer. DCS can assist in the client in selecting the most appropriate broker-dealer covering the relevant futures exchange(s).
DCS advisors are able to provide hedging advisory services on a stand-alone basis on behalf of public and private sector clients who are pursuing project financing, corporate financing, acquisition financing, refinancing/restructuring or workout & restructuring transactions. In most cases, as hedging advisory services will be only one element of a larger project delivery program, DCS will also be providing other complementary transaction advisory services in relation to other transaction elements. Our preference is always to provide such comprehensive transaction advisory services and coordinate all elements of the transaction, including hedging advisory services on behalf of our clients.
Under any hedging advisory mandate, DCS will draw from our vast global network of veteran industry expert advisor affiliates and our relationship consultants in order to assemble the most appropriate team to match the specific needs of the transaction at hand. This will always include leadership of DCS affiliate experts who possess decades of global transactional experience related to the specific sector and transaction type. In any hedging advisory service mandate, our preferred role is always to serve as the lead project/program manager. Within this role we are also able to assist in the selection and procurement (or subcontracting) and management of other advisors, including local and international legal and tax advisors or other specialized advisors, as the specific transaction may require.
Complementing our hedging advisory services, DCS advisors offer the following complementary advisory services that may be applicable, dependent on the hedging transaction situation.
DCS experts provide comprehensive hedging advisory services in the following sectors that we specialize in. Please click on the below links to learn more about the sectors that we cover:
DCS experts provide hedging advisory services to the following categories of clients:
dcs advisory Experts team
hedging & derivatives
Washington NC, USA
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