Companies pursuing major initiatives tend to favour stability as a backdrop to thier endeavours. But in early 2025, stability was in short supply. With Donald Trump’s return to the White House came a disruptive policy agenda, prominently featuring a giant game of tariff bingo that threatened to upend global markets.
Those with complex financing requirements needed partners with cool heads, equipped with the adaptability and expertise to keep multifaceted projects on track, as uniquely destabilising moves rattled markets and participants alike.
Against these headwinds, BNP Paribas successfully demonstrated its ability to navigate the turbulence across a gamut of deals. Notable among them: a flexi pre-hedge of a €1.2 billion ($1.39 billion) bond issue that also incorporates a lookback feature; a range of bespoke contingent hedges that span rates, inflation and commodity indexes for Poland’s largest renewables project; and a novel approach to strengthening French insurer Scor’s Solvency II balance sheet.
“We invest a lot in anticipating client needs and delivering an effective outcome”
Fabrice Famery, BNP Paribas
As Fabrice Famery, head of global markets, corporate sales at BNP Paribas notes, it’s a matter of being able to bite the bullet on these diverse and complex undertakings.
“Confident and reliable risk appetite is somthing we are known for. When we say something, we do it,” says Famery.
“We invest a lot in anticipating client needs and delivering an effective outcome,” adds Famery, and when it is time to go to the market to deliver a solution, the bank ensures “very clean execution”.
These kinds of solutions have in turn helped fuel the bank’s growth in recent years, says Famery: “Together with clients, we engineer risk management solutions which unlock value. We significantly enhance the relationship between clients and ourselves and that has additional real value.”
These statements evidently resonate with the bank’s clients. Those speaking to Risk.net express a high satisfaction level with the novel transactions BNP Paribas has been able to deliver – not least as a partner in protecting them from the volatility that became so prevalent over the past year.
Flexi pre-hedge
Table of Contents
The Trump-heralded ‘Liberation Day’ tariff announcements of April 2 became a point of fixation for global markets. The will-they,won’t-they trade tariffs whipped up volatility and threatened to thrust markets into a fully new regime.
For corporates with financing needs, it was a far-from-ideal backdrop.
In March, Belgian chemical firm Syensqo – which at the end of 2023 was spun out of Solvay – approached the bank with a refinancing conundrum.
Syensqo needed to issue new debt within a two-month timeframe to refinance a bond maturing later in the year.
But the timing was a concern; the primary bond market was in poor shape and investors were jittery. Interest rate markets were reeling – in the first two weeks of March alone,10-year euro swap rates jumped by more than 40 basis points.
The company was also set to enter into a blackout period ahead of its first quarter results, casting further doubt on timing.
There were also concerns that entering into a significantly sized pre-hedge on a single day coudl leave Syensqo locked into unattractive pricing, should markets move in its favour by the time the deal launched.
## Hedging Horizons: BNP Paribas’ Innovative Solutions in Project Finance and Insurance
In 2022, BNP Paribas secured a global coordinator role on a deal-contingent interest rate hedge for the first Polish project, Baltic Power – a 1.2-gigawatt joint venture between Poland’s PKN Orlen and canada’s northland Power. This success led to a leading role in Baltica 2 – a 1.5-gigawatt joint venture between PGE and Orsted.
BNP Paribas was selected as sole hedging co-ordinator on a €2.8 billion financing for Baltica 2. This demanded bespoke contingent hedging solutions across three asset classes: rates, inflation and commodities, requiring “first-of-their-kind solutions in the market”, according to evelina Hinovska, a derivatives structuring executive at the bank.
To manage interest rate risks and protect the debt service ratio, a 25-year deal-contingent interest rate swap was executed 10 months before the project’s February 2025 financial close, and novated out to 15 banks.
The sponsor also sought to hedge inflation and commodity price risk related to construction contracts and potential revenue opportunities. Once the client had sufficient visibility on its construction contracts, BNP Paribas provided over a dozen contingent hedges, three or four months before financial close.
These included hedges against euro CPI and commodities including copper, steel, hard coking coal and EU allowances – all on an uncollateralised, non-recourse basis to the project entity.Many of these commodities lacked a liquid underlying options market – HRC steel and coking coal, for example – requiring the bank to “take a view and build on our side a way of managing those risks, depending on our internal models and views on past volatility”, says Hinovska.
“We work very closely with our trading and structuring teams in both inflation and commodities to ensure the needs and time horizon of those contingent hedges are manageable.”
Hinovska notes that rising costs associated with these types of projects are leading suppliers to request indexation in construction contracts with developers,who are then seeking hedges for these exposures: “Developers would like to limit those exposures,but when needed,we are contacted by some developers to understand whether those indices are hedgeable and for what time horizon,and if not,what the solutions are.”
### Solving for solvency
In the summer of 2024, French insurer Scor faced an urgent restructuring challenge. A profit warning ahead of its second quarter results caused the stock to shed almost 20% in three days, threatening a solvency ratio already lagging peers.
The insurer needed to fortify its Solvency II balance sheet against interest rate stress tests to restore confidence ahead of its next quarterly results – due in November.Conventional tools aimed at a solvency ratio uplift had already been exhausted, while a capital increase was seen as a last resort, due to shareholder dilution.
BNP Paribas proposed an alternative approach – a whole account stop-loss.
BNP Paribas Structures Deal to Protect Wendel’s Credit Rating after Acquisition
BNP Paribas facilitated a complex structured equity transaction enabling investment manager Wendel to maintain its investment grade credit rating following a €1 billion acquisition of private credit specialist Monroe Capital. The deal, executed in volatile markets, allowed Wendel to avoid a potential downgrade by Standard & Poor’s (S&P) without divesting a key asset at an unfavorable time.
Wendel’s Rating Challenge
Wendel’s acquisition of Monroe capital, part of a broader strategy to expand its third-party private asset management platform, temporarily jeopardized its BBB rating. The purchase increased Wendel’s loan-to-value ratio above a critical 20% threshold, prompting S&P to place the rating on negative watch. https://www.wendelgroup.com/en/news/wendel-completes-the-acquisition-of-monroe-capital/
A straightforward solution would have been to sell a stake in Bureau Veritas, a testing and certification firm representing approximately 45% of Wendel’s equity portfolio’s net asset value. However, this presented challenges:
* Poor timing for Bureau Veritas: Bureau Veritas had recently launched a new strategic plan, making a divestment by its largest shareholder particularly unwelcome.
* Unfavorable Market Conditions: Wendel was hesitant to sell shares at a potentially low valuation, believing in the stock’s future upside.
BNP Paribas’ Innovative Solution
BNP Paribas devised a strategic equity transaction that allowed Wendel to maintain exposure to Bureau Veritas, including voting rights, while addressing the rating concerns. The solution combined two key components:
* Three-Year Prepaid Forward: BNP Paribas executed a three-year prepaid forward contract on a sole basis. This essentially locked in a future price for the shares.
* Call Spread: A call spread, executed with Morgan stanley (75% participation) and BNP Paribas (25% participation), provided limited upside exposure to the shares over the transaction’s lifespan. A call spread involves buying and selling call options with different strike prices,limiting potential gains but also reducing risk.
Crucially, the transaction was structured to qualify as a “true disposal” for ratings purposes. This meant ensuring that corporate actions related to Bureau Veritas – such as a tender offer or merger – wouldn’t trigger an early unwinding of the deal, a common issue with similar transactions.
Accelerated Bookbuilding and Execution
On March 12th, BNP Paribas executed the delta associated with the transaction through a €750 million accelerated bookbuilding exercise. This involved rapidly gathering interest from investors. The bank conducted a “wall-crossing” process, confidentially marketing the offering to potential investors. Despite volatile market conditions, the transaction was completed at a 5% discount to Bureau Veritas’s last closing price. https://www.bnpparibas.com/group/news/press-releases/bnpparibas-facilitates-wendels-bureau-veritas-transaction.html
Key Takeaways
* complex Financial engineering: This deal demonstrates the sophisticated financial instruments banks can use to address complex corporate challenges.
* Rating Agency Sensitivity: The transaction highlights the importance companies place on maintaining favorable credit ratings and the lengths they will go to avoid downgrades.
* Strategic Value Preservation: Wendel successfully navigated a potentially damaging situation by preserving its stake in a key asset and its associated upside potential.
* Market Volatility: The prosperous execution in volatile markets underscores BNP Paribas’s capabilities in equity capital markets.
looking Ahead
This transaction exemplifies a growing trend of innovative financial solutions designed to help companies manage their capital structures and navigate complex market conditions. As private equity firms continue to grow in size and complexity,demand for these types of bespoke financial instruments is highly likely to increase.