When a benign amendment quietly breaks a “fully hedged” structure
Sector: Project Finance – Operating Assets
Asset Class: Transport Infrastructure / Regulated Utilities / Availability-Based Assets
Situation Type: Operating-phase floating-rate debt with amended benchmark and reset terms
Primary Issue: Persistent interest leakage driven by benchmark and reset mismatch between debt and legacy hedges
The Situation
An operating project with stable cash flows amended its debt terms years after financial close.
The change appeared administrative – a shift in benchmark reset conventions intended to improve pricing efficiency.
The legacy hedge structure was left untouched.
On paper, the project remained fully hedged. In cash terms, interest expense began drifting away from modelled expectations.
Why This Scenario is Common
Post-close amendments are treated as documentation events, not structural events.
Debt benchmarks are updated to reflect market practice, while hedges are assumed to remain “close enough.” The interaction between reset timing, benchmark behaviour, and legacy hedge mechanics is rarely revisited.
The misalignment doesn’t cause a shock. It creates slow, explainable-but-uncomfortable leakage.
Why It Matters
Over time, the mismatch:
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Weakens hedge effectiveness without triggering an obvious breach
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Creates unexplained interest drift in otherwise stable assets
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Puts pressure on hedge accounting and audit narratives
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Destroys embedded hedge value if addressed bluntly
- Reduces refinancing and asset-sale optionality
The problem isn’t rate direction. It’s that the structure no longer behaves as intended.
How This Is Typically Addressed
The default response is to unwind and replace hedges to match the amended debt.
That approach:
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Crystallises mark-to-market losses
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Transfers embedded value to counterparties
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Locks in worse forward economics
The issue is treated as an execution problem instead of a structural one.
Primary Engagement Route
Hedge Rebuild™ – Structural realignment of debt, hedges, and reset mechanics
Read the IC Brief → (2-page decision summary)
Full structural narrative shared selectively on request.
Illustrative scenario for discussion purposes only. Not a transaction summary or client-specific case study.