Deal Contingent Hedges in M&A and Infrastructure Transactions

Increased volatility in currency exchange rates, in part driven by the uncertainty of Brexit, is leading borrowers to seek protection from interest rate and currency exchange rate risks. In particular, in the context of reduced certainty around regulatory approvals and shareholder appetite for certain M&A transactions, bidders requiring acquisition finance have welcomed the advent of deal contingent hedges, which offer a flexible means to hedge interest rate or currency exchange risk in M&A transactions and infrastructure acquisitions.

A deal contingent hedge is essentially a derivative that is entered into before closing of the transaction, which locks in a financing cost and/or forward exchange rate from the outset, but falls away without any payment by either party if the acquisition does not close.

Linklaters has prepared two notes setting out key aspects of deal contingent hedges, one in connection with M&A transactions and the other in connection with infrastructure transactions.