CASE STUDY: BARCELONA BRASSERIES;
CASE STUDY: BARCELONA BRASSERIES
Barcelona Brasseries S.L. is a restaurant chain of new concept do it yourself brasseries owned by the Oriol family. They had 5 restaurants in owned premises or long-term leasing. Given the recent decrease in price of commercial property the family had recently acquired new locations across the city of Barcelona for a total of 1000000 euro to use as premises of new brasseries.
The company had requested a new loan (commercial mortgage) of 350000 euro amortising over 10 years to convert and refurbish the newly acquired premises into the brasseries concept paying a margin of 4% over 3M Euribor. The loan was guaranteed by existing properties for a survey value of 450000 euros. The business also had outstanding additional borrowings of c. 400000 euro (200000 remaining maturity of 8 years and 200000 for 5 years) both at 3% margin over 3M Euribor. The family has provided the debt repayment profile as per the table below. Loan 1 Loan 2 Loan 3 Principal outstanding 350k 200k 200k Interest rate Floating Floating Floating Margin 4% 3% 3% Tenor (years) 10 8 5 Repayment Amortising Amortising Amortising Monthly payment 3627 2392 3638 Annual repayment 43524 28704 43656 Capital 27774 21704 36656 Interest 15750 7000 7000
The most recent accounts for Barcelona Brasseries S.L. show an EBITDA of 167880 euros p.a. and net profit of 132000 euro p.a. Dividends of c. 120000 euros had been paid to partly finance the family lifestyle.
In one of the casual meetings the familys private banker has recently proposed the possibility to protect the business from interest rate fluctuations through derivatives and they have decided to appoint you as an independent adviser to discuss whether protection makes sense in the current economic environment and if so what potential strategies they could use to do so.
From the ECB Monthly Bulletin you have obtained the following information:
The one-month three-month six-month and twelve-month EURIBOR stood at 0.22% 0.29% 0.39% and 0.55% respectively. The spread between the twelve-month and one-month EURIBOR an indicator of the slope of the money market yield curve declined marginally by 2 basis points to stand at 33 basis points on 5 February.
In addition the family banker has provided the following information:
Euribor 3 Month Swap rate*: 1%
? 0.5% premium: 85000 euros
? 1% premium: 55000 euros
? 1.5% premium: 40000 euros
? 2% premium: 35000 euros
? 2.5% premium: 20000 euros
? 3% premium: 10000 euros
? 1% ( less 40000 euros)
? 1.5% (less 30000 euros)
? 2% (less 20000 euros)
*Assume the above details remain constant for any notional amount hedged. Assume that increasing tenors result in increased rates and costs of protection by a certain arbitrary amount.
PREPARE A REPORT FOR THE FAMILY PROVIDING DETAILS OF:
1) WHETHER HEDGING INTEREST RATES AS SUGGESTED BY THE PRIVATE BANKER WOULD MAKE SENSE GIVEN THE EXISTING ECONOMIC ENVIRONMENT
2) HOW DIFFERENT INTEREST RATE HEDING STRATEGIES SUCH AS PRODUCTS (SWAP CAP OR COLLAR) CAN HELP THE FAMILY.
3) DESIGN AND RECOMMEND AN AD-HOC SOLUTION BASED ON THE FOLLOWING FACTORS:
a. Notional amount
b. Time of protection (tenor of instrument(s))
c. Products / strategies
d. Protection rate
4) EXPLAIN HOW WOULD YOU SELL THE SOLUTION TO THE FAMILY
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT
CASE STUDY: BARCELONA BRASSERIES; CASE STUDY: BARCELONA BRASSERIES Barcelona Bra
CASE STUDY: BARCELONA BRASSERIES;