Q&A: PMC Treasury – Structuring hedging strategies for long-term project resilience

From soaring interest rate volatility to growing regulatory complexity, the financial landscape for infrastructure and energy sponsors is undergoing rapid transformation. As projects become more capital-intensive and financing structures more bespoke, the need for proactive, technically robust risk management is increasingly critical. Hedging has become a strategic tool that can make or break investment cases, especially in volatile or delayed execution environments.

To understand how risk management strategies are evolving in response, inspiratia spoke with Rafa Sanchez, Head of Risk Management – Iberia at PMC Treasury.

The independent advisory firm supports sponsors and investors in managing financial market risks and building institutional-grade treasury infrastructure.

Rafa Sanchez shares a front-line view of the most pressing risk management questions sponsors are currently facing, and how structuring, documentation and timing can be as critical as market outlook when designing effective hedging strategies.

Can you tell us about PMC Treasury and the services it offers?

PMC Treasury is an independent and impartial treasury and financial risk-management advisory firm. We have a 35-year track record helping clients navigate their exposure to financial market risks (rates, FX, inflation, commodities, etc) in addition to supporting their operational treasury needs.

Our business operates across four distinct verticals:

Risk Management supports clients in identifying and quantifying exposures to financial market risks and then designing and implementing appropriate hedging strategies. In the context of project financing, this can be implemented through interest rate hedging or pre-hedging on floating-rate debt, FX and commodity hedges related to capex roll-out, inflation hedges where there is explicit indexation on revenues or costs, and power-price hedging on certain offtake strategies. Importantly, we are never a counterparty to any trade; we only undertake advisory work for our clients, but will run the entire process through to final execution.

Closely linked to the work we do in Risk Management, our Hedge Accounting and Valuations team specialises in the go-forward accounting governance of the hedges, including creating hedge accounting relationships to minimise P&L volatility and IFRS and auditor-compliant valuation of the derivatives. On the latter part, they are also experts in PPA valuations, leveraging our in-house analytics platform.

Formed by seasoned Treasury practitioners, our Treasury Solutions colleagues bring "boots-on-the-ground" experience to many clients who are in the process of transitioning from developers to full-fledged Independent Power Producers, by, among other things, building cash-management and forecasting tools, addressing working-capital issues and developing long-term hedging frameworks for these businesses that are growth-focused and scaling, but do not yet have a "large-corporate" and mature treasury environment in place.

Lastly, our Fund Level offering is focused on delivering a full hedging advisory and agency execution service to private market asset managers across credit, infrastructure, and equity.

Sponsors are using increasingly bespoke financing tools, such as construction bridges, portfolio refinancings and HoldCo debt. What role does hedging play across these structures?

This is something which we touched on at length during inspiratia's "Financing Renewables" summit in Madrid. As I alluded to then, we see many sponsors bifurcate their thinking and management of interest rate risk, away from the context of a specific financing.

Financing of any given asset can come in many forms during the asset's useful life, as you mention in your question, but to the extent the asset has some form of leverage, it will have exposure to interest rates.

Consequently, it is not uncommon for sponsors to separate hedging decisions from the context of any specific financing. At an extreme, this can look like very long-dated hedging on debt tenors close to the useful life of the asset, but more practically, we see it manifest itself in sponsors deciding to hedge reasonably beyond the legal tenor of a financing to de-risk interest rate risk of future debt refinancings.

For example, hedging to the underlying cash flow profile on a mini-perm project financing, with the goal being de-risking not only the existing financing but also the future refinancing, e.g. if at future refinancing point rates are much higher, the positive MtM (mark-to-market) value of the long-dated swap could help support a smoother refinancing, essentially offsetting the reduced debt capacity caused by higher rates.

Conversely, if rates are lower at refinancing, then the project may be able to support more debt, even if the hedge shows a negative MtM. Either way, the hedge can create visibility and stability around future refinancing risks.

This kind of forward-looking hedging strategy has implications not just for structuring the swap but also for loan documentation, which needs to be drafted in a way that allows the hedge to survive and remain portable into future financings. That is a key part of our approach when working with clients.

How are lenders and sponsors balancing market challenges, like regulatory headwinds and rate volatility, with emerging pipeline opportunities? Has this led to a shift in hedging practices?

Lenders and sponsors are facing many challenges with respect to financing. Consequently, lenders are showing greater focus on high-quality projects that sponsors bring to the table, and often increasing financial model stability is a way to enhance the "bankability" of a specific project. In our world, this often translates into sponsors seeking to de-risk financial model exposure to interest rate volatility through pre-hedging, an approach that is frequently viewed favourably by lenders. We have seen a deep appetite from European lenders recently for high-quality projects, and linked to this depth of appetite, we have been able to put in place market-leading terms and structures in respect of pre-hedging technology.

For instance, for a project signing in July, but with a first utilisation in December, a one standard deviation would see rates change by ±50bps. That implies that there is a one-in-six chance that rates could increase or fall by more than 50bps before closing.

Against this very real risk, we increasingly see sponsors actively push to lock in model rates well ahead of closing. There are many technologies which are used for these pre-hedges, including deal contingent technology. With this type of hedge, the sponsor can fix a swap rate, but the existence of that hedge is "contingent" on the deal closing (hence the name). Meaning that, if for whatever reason the deal falls through, the sponsor does not have a negative MtM to face (subject to certain carveouts and negotiated terms). Other times, the sponsor may have an active pipeline pre-hedging programme and is comfortable putting the hedges in place in a "vanilla" form and owning the MtM risk.

There has been a clear increase in non-bank capital and mezzanine debt entering the space. How does this shift affect the structuring of risk management solutions, particularly for early-stage or development-phase projects?

The rise of private credit funds in project finance is becoming more common, especially in early-stage or complex projects, due to their flexibility and higher risk appetite. However, private lenders typically do not offer hedging products, which creates a challenge since most loans are floating-rate. This is where "orphan hedging" comes in.

An orphan hedge is provided by a bank outside the lending syndicate solely to offer the interest rate hedge. Demand for long-dated orphan hedges is growing, especially where sponsors want to secure future cash flow stability. For this to work, financing documents must be structured carefully, such that they offer potential orphans sufficient comfort to unlock their appetite.

We assist sponsors and their counsel in structuring documentation to size super senior baskets properly, meet hedge providers' terms, and ensure clarity and enforceability for orphan banks. Ultimately, the rise of non-bank lenders brings new options but requires more careful risk management structuring, especially for early-stage projects with higher volatility.

Political risk seems to be a growing concern. How do you approach scenario planning for regulatory or intervention risk in risk management strategies?

Regulatory and political risk is indeed on the rise and increasingly material for developers. The way we tend to see that manifests most directly in our work is through project delays.

Take Spain as an example: the recent introduction of negative pricing hours has caused many expected project signing dates to be pushed back. And that timing uncertainty has real financial consequences, especially in volatile rate environments.

When timelines slip, sponsors suddenly face exposure to interest rate movements that could materially affect debt sizing or push a project outside its investment committee-approved metrics.

So, our approach is to help sponsors lock in what they can control, particularly on the rates side. This often takes the form of pre-hedging, even during early or uncertain stages of development. If a sponsor expected technical due diligence to take six weeks and it is now stretching to 10, that four-week delay could mean a major change in swap rates or base rates, which directly affects project economics.

So, regardless of whether the uncertainty is regulatory, political, or procedural, it drives a greater appetite for early hedging to preserve returns. We do not hedge political risk per se, but where it causes uncertainty in timing, our focus is on insulating sponsors from downstream financial volatility wherever we can.

Are there different risk mitigation strategies depending on the asset class, for instance, emerging technologies like BESS or floating offshore wind?

Yes, different asset classes require different risk mitigation strategies due to their unique timelines and risk profiles.

Floating offshore wind, for example, can take several more years to build than solar or BESS projects, which are built in 12-18 months, allowing for tighter control and more precise hedging during construction.

One common challenge in that regard may be technical over-hedging during the CapEx roll-out. Sponsors often hedge based on an expected debt drawdown schedule, but if construction is delayed, they may end up hedging more than their actual exposure, potentially leading to costly swap unwinds.

To manage this, we focus on building flexibility into the financing documents, so sponsors are not locked into rigid terms if project timing changes. The right risk strategy depends on the asset class, and success often hinges as much on the commercial structuring of financing documentation as on the hedge strategy itself.

What are some common blind spots or misconceptions you see among sponsors when it comes to interest rate or foreign exchange risk management today?

One of the biggest challenges we see is recency bias. Many sponsors are used to ultra-low rates and now question the need to hedge, thinking, "Why hedge if rates are coming down?"

But swap rates already reflect market expectations, including anticipated rate cuts. Hedging today does not mean you are missing out unless reality turns out more dovish than forecast. Timing the market is risky; hedging should be about protecting your base case, not chasing rate movements.

Our advice: if current rates work for your investment case and debt sizing, lock them in. Do not let macro speculation derail a project with otherwise solid fundamentals.

Another common concern is negative mark-to-market when hedging beyond debt maturity. To manage that, we structure portability into hedge documents, so the hedge can often be transferred at refinancing instead of being closed out at a loss.

Are you seeing more interest in platform-level refinancing, and what are some of the implications from a hedging and risk management perspective?

Many platforms have historically grown through single-project, non-recourse financing, leading to fragmented and inflexible capital structures with numerous SPVs.

This creates operational challenges in reporting, covenant compliance, and portfolio management. Consequently, there is growing interest in raising corporate-style, platform-level debt, often across jurisdictions.

Platform financing offers greater financial and operational flexibility, covering both greenfield and brownfield assets, and simplifies funding for pipeline development. However, hedging becomes more complex since each legacy project financing usually has its own hedge. Refinancing into a single platform requires careful management of existing swaps to minimise friction costs.

A key consideration is how to handle the mark-to-market value of these legacy swaps, which can be positive due to historically low rates. Sponsors may extract this value as cash, boosting IRR but possibly triggering tax issues, or recycle it into the new hedge to reduce swap rates and increase debt capacity.

Ultimately, building flexibility into documentation from the start is critical. It allows sponsors to adapt efficiently when platform refinancing opportunities arise, minimising costs and maximising value.