HIGHLIGHTS
Client: Etrion
Objectives:
Support for hedging interest rate risk and reducing cash flow volatility
Requirements:
- Eliminate reliance on spreadsheets for hedge accounting
- Obtain accurate valuations
- Seek support from a trusted third-party provider
"We were looking for an intuitive and reliable solution that we could use in-house to handle our interest rate swap contracts and reduce cash flow volatility. We found all this with FINCAD's hedge accounting."
David Ramirez, External Reporting Manager, Etrion
Background
Etrion Corporation ("Etrion") is an independent solar power producer based in Geneva, Switzerland. Listed on the Toronto Stock Exchange and on the NASDAQ OMX Stockholm exchange, Etrion acquires, develops, builds, owns and operates solar power plants. The company currently owns 60 megawatts of operational, ground-based solar photovoltaic power plants in Italy.
Business Setup
For Etrion, growth is driven by the development and acquisition of solar power facilities with long-term electricity sales contracts (projects are financed with non-recourse loans up to 20 years), with the ultimate goal of producing low-cost, clean energy at attractive returns. With most of its projects being leveraged up to 90%, it is critical for Etrion to hedge its interest rate risk and reduce cash flow volatility.
Challenges
Etrion initially hired an external consulting firm, but soon found 3 key limitations with outsourcing its hedge accounting process:
1. High costs associated with consultants. With the requirement of running hedge accounting reports on a quarterly basis – and the typical tight timeline of this process – consultants quickly became unaffordable.
2. Lack of a timely response. While Etrion would receive the independent valuations required, information would often arrive late, making the application of hedge accounting a stressful process.
3. Minimal control over the hedge accounting process. By relying on external consultants, Etrion felt that its internal knowledge was diminishing, leading to less control over the hedge accounting process.
When looking for an alternative solution, Etrion found that using spreadsheets for hedge accounting would not solve its unique challenges.
Solution
Etrion’s advisors recommended FINCAD for hedge accounting. Mainly used by the accounting and finance department, Hedge Accounting Insight is also used by Etrion to support the project finance team when it comes to valuations, particularly when the company is considering applying a new derivative instrument.
Results
Better Efficiency: FINCAD for hedge accounting offers automated calculations and an intuitive user interface, Etrion can now easily schedule its calculations to run as frequently as they need, with the assurance that the reports will be available when the company requires them.
Taking Back Control: With the ability to schedule calculations at the click of a button and receive an email notification when the reports are ready to be downloaded, Etrion’s hedge accounting process can now be run entirely in-house, giving the company complete control.
Complying with Hedge Accounting Standards: "Another benefit that I particularly like with FINCAD is that it provides our auditors with the exact information they require in terms of documentation," continues Mr. Ramirez. "We provide our auditors with the same information in the same layout every quarter, and they can audit that information easily."
Prompt Customer Support: "The FINCAD Client Services team is excellent," tells Mr. Ramirez. "For every question I have, I get an immediate response – which is great. When I receive very technical questions from our auditors, I share them with FINCAD’s analysts and the response that I get is exactly what we were expecting – and the auditors are also pleased with the answers."
Looking Forward
Etrion will continue to rely on Hedge Accounting Insight as its hedging program grows. Given its automation capabilities, adding hedges does not require extra time when managing its hedge accounting process – improving Etrion’s productivity and enabling them to focus instead on adding value to its business.
"We have made significant improvements regarding our processes, thanks to FINCAD's hedge accounting. We get what we want, when we need it, as we need it, and it also satisfies our audit requirements."