Maximizing Savings & Securing USD Funding: Tecredi's Success Story
The client
Tecredi is a credit fintech based out of the South East of Brazil and specializes in providing vehicle financing quickly, securely, and digitally through their partner’s networking.
This networking includes over two hundred local car vendors and national insurance companies in Brazil.
Through a strong partnership with the team of Credix, a decentralized credit marketplace that provides very agile financial solutions at competitive rates, Tecredi issued a USD 12 million long-term loan.
The deployment of this loan was structured in four equal tranches drawn in the first 1 to 6 months of the deal and converted into Brazilian Real. The repayment is a lump sum payment made for the entirety of the outstanding balance of the loan.
Background
Given that Credix is lending in U.S. dollars to Tecredi, there is a
considerable currency risk, considering that historical USDBRL annual volatility was north of 16.48%.
Fig. USDBRL Historical Spot Rate
From Tecredi’s perspective, a significant depreciation of the local currency (Brazilian Real) would translate into an increase in the local currency value of outstanding debt.
From Credix’s perspective, a significant deterioration of the quality of foreign currency loans can expose the firm to an earnings risk, through a significant decrease in interest income and an increase in provisioning.
Methodology
Tecredi wanted to ensure that the currency exposure was properly assessed, and it's potential risk would be mitigated.
Deaglo’s FX Risk Management platform helped Tecredi quantify the FX risk and design hedging strategies for the existing exposure, including the steps below:
1. UNDERSTANDING & QUANTIFYING THE RISK (VaR)
2. MARKET CONDITIONS
3. HEDGING COST
4. HEDGING ARRANGEMENTS (Layering & Rollover approaches)
5. STRATEGY COMPARISON (Hedging products)
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In particular, for item number 5, Deaglo’s platform was able to identify which derivative product was the most cost-effective to hedge the exposure.
Through the Strategy Simulator, Tecredi was able to assess the hedging product that would reduce the negative impact of the interest rate differential the most, protect against tail risk, and allow the furthest upside participation.
Results
Given the VaR analysis, no FX hedge could represent a material risk to the Client's cash flow.
The layering and roll-over approach combined allowed Tecredi to achieve a perfect hedging arrangement which was able to reduce the hedging cost substantially and allow the client to be cash efficient.
The hedging strategy executed guaranteed that Tecredi would not be adding a liquidity risk to its cash flow.
Gustavo Pulga
Using Deaglo FX´s risk management tools, we were able to design a hedging strategy that enabled us to fund in USD.
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Deaglo's technology and best practices brought more comfort and security to move forward with the deal, not only for the Tecredit team but also for the lenders.
Deaglo´s platform helped us select the right hedging product and tenors to protect the USD against the BRL fluctuations, substantially reducing the cost of hedging and enabling funding in USD.
CO-CEO Tecredi