Risk solutions house of the year: BNP Paribas

Risk Awards 2026: Diverse range of transactions puts French bank’s innovative skills in the frame

Photo: Juno Snowdon

Companies pursuing major initiatives tend to favour stability as a backdrop to their endeavours. But in early 2025, stability was in short supply. With Donald Trump’s return to the White House came a disruptive policy agenda, prominently featuring a giant game of tariff bingo that threatened to upend global markets.

Those with complex financing requirements needed partners with cool heads, equipped with the flexibility and expertise to keep multifaceted projects on track, as uniquely destabilising moves rattled markets and participants alike.

Against these headwinds, BNP Paribas successfully demonstrated its ability to navigate the turbulence across a gamut of deals. Notable among them: a flexi pre-hedge of a €1.2 billion ($1.39 billion) bond issue that also incorporates a lookback feature; a range of bespoke contingent hedges that span rates, inflation and commodity indexes for Poland’s largest renewables project; and a novel approach to strengthening French insurer Scor’s Solvency II balance sheet.

We invest a lot in anticipating client needs and delivering an effective outcome

Fabrice Famery, BNP Paribas

As Fabrice Famery, head of global markets, corporate sales at BNP Paribas notes, it’s a matter of being able to bite the bullet on these diverse and complex undertakings.

“Confident and reliable risk appetite is something we are known for. When we say something, we do it,” says Famery.

“We invest a lot in anticipating client needs and delivering an effective outcome,” adds Famery, and when it is time to go to the market to deliver a solution, the bank ensures “very clean execution”.

These kinds of solutions have in turn helped fuel the bank’s growth in recent years, says Famery: “Together with clients, we engineer risk management solutions which unlock value. We significantly enhance the relationship between clients and ourselves and that has additional real value.”

These statements evidently resonate with the bank’s clients. Those speaking to Risk.net express a high satisfaction level with the novel transactions BNP Paribas has been able to deliver –  not least as a partner in protecting them from the volatility that became so prevalent over the past year.

Flexi pre-hedge

The Trump-heralded ‘Liberation Day’ tariff announcements of April 2 became a point of fixation for global markets. The will-they, won’t-they trade tariffs whipped up volatility and threatened to thrust markets into a completely new regime.

For corporates with financing needs, it was a far-from-ideal backdrop.

In March, Belgian chemical firm Syensqo – which at the end of 2023 was spun out of Solvay – approached the bank with a refinancing conundrum.

Syensqo needed to issue new debt within a two-month timeframe to refinance a bond maturing later in the year. 

But the timing was a concern; the primary bond market was in poor shape and investors were jittery. Interest rate markets were reeling – in the first two weeks of March alone, 10-year euro swap rates jumped by more than 40 basis points.

The company was also set to enter into a blackout period ahead of its first quarter results, casting further doubt on timing.

There were also concerns that entering into a significantly sized pre-hedge on a single day could leave Syensqo locked into unattractive pricing, should markets move in its favour by the time the deal launched.

The averaging-in idea has really taken off for the simple reason that it manages the timing piece

Ashley Parker, BNP Paribas

“They could have found themselves with a negative mark-to-market very quickly because of the swings, because of the news from the White House at the time,” says Ashley Parker, head of corporate solutions sales, Emea at BNP Paribas. “So they wanted to manage the timing risk of entering into the pre-hedge.”

BNP Paribas set to work on a bespoke solution that split the timeline into four buckets.

The first was a two-week preparation period immediately after the board decision, in which the bank structured an averaging-in of the pre-hedge rate.

A second period provided a window in which the company could issue the new debt and unwind the swap at a pre-determined rate. And a third window covered the blackout period, during which the company could not issue the debt.

The final window provided another opportunity for the company to print the bond and unwind the swap, if it had not already done so.

A lookback feature meanwhile meant the pre-hedge level set over the preparation period acted as a cap on the final rate – a worst-case scenario for the issuer.

Given the extreme volatility in April, the issuer executed in the final window, selling two €600 million issues with six- and 10-year maturities on May 21. It was also able to take advantage of the lookback feature, locking in better rates than with a standard pre-hedge.

Anne Lenaerts, senior funding officer at Syensqo, was impressed with the bank’s technical expertise and the practical hedging solution.

“Their innovative instrument, with a flexi start and lookback, made it possible to benefit from declining rates while remaining protected against increases, and to cope with the uncertainties on execution timing,” says Lenaerts.

It’s an approach that caught the attention of other corporates – the bank says it has used the structure in other instances.

“It’s definitely useful going forward,” says Parker. “The averaging-in idea has really taken off for the simple reason that it manages the timing piece. Having this with a lookback, which is a capped rate, as a way to remove the human element of splitting a pre-hedge into tranches and executing over multiple days, is definitely a trend and we’ve done it several times since.”

Flexibility typically comes with an additional cost, and in this case, it was estimated at a couple of basis points for both the cap and start-date timing on the swap.

For the bank, hedging this exposure was similar to a deal-contingent options-based strategy. The cap was managed over the averaging period, while the flexi option was hedged based on probabilities and out-of-the-money options.

Like the wind

For a French bank, BNP Paribas has built dominance in some surprising areas, such as  Polish offshore wind farm projects.

In 2019, as Europe was building plans for a ramp-up in renewables infrastructure spending for the energy transition, the bank stood ready to position its franchise to support the resulting long-term capital expenditure super-cycle.

Among European projects, a new frontier was emerging in Poland, which introduced its offshore wind act in 2021, in the process committing to an 11-gigawatt development plan – equating to an estimated €30 billion of financing.

Leveraging local expertise via its Bank Polska subsidiary – and relationships with Polish utilities and sponsors – BNP Paribas strategised becoming a leader in this market. Documentation that replicated the UK’s contract-for-difference scheme gave the bank a head start – having already hedged or financed the majority of UK projects.

Photo: Juno Snowdon

Evelina Hinovska, BNP Paribas

In 2022, the bank landed a global coordinator role on a deal-contingent interest rate hedge for the first Polish project Baltic Power – a 1.2-gigawatt joint venture between Poland’s PKN Orlen and Canada’s Northland Power.

This paved the way for a leading role in Baltica 2 – a 1.5-gigawatt joint venture between PGE and Orsted.

BNP Paribas was selected as sole hedging co-ordinator on a €2.8 billion financing. This required bespoke contingent hedging solutions across three asset classes: rates, inflation and commodities, calling for “first-of-their-kind solutions in the market”, according to Evelina Hinovska, a derivatives structuring executive at the bank.

To manage interest rate risks and protect the debt service ratio, a 25-year deal-contingent interest rate swap was executed 10 months before the project’s February 2025 financial close, and novated out to 15 banks.

In addition, the sponsor was keen to hedge inflation and commodity price risk relating to construction contracts and potential revenue opportunities. Once the client had sufficient visibility on its construction contracts, BNP Paribas provided over a dozen contingent hedges, three or four months before financial close.

These included hedges against euro CPI and commodities including copper, steel, hard coking coal and EU allowances – all on an uncollateralised, non-recourse basis to the project entity.

Many of these commodities lacked a liquid underlying options market – HRC steel and coking coal, for example – requiring the bank to “take a view and build on our side a way of managing those risks, depending on our internal models and views on historical volatility”, says Hinovska.

“We work very closely with our trading and structuring teams in both inflation and commodities to ensure the needs and time horizon of those contingent hedges are manageable.”

Hinovska says rising costs associated with these types of projects are leading suppliers to request indexation in construction contracts with developers, who in turn are seeking hedges for these exposures: “Developers would like to limit those exposures, but when needed, we are contacted by some developers to understand whether those indices are hedgeable and for what time horizon, and if not, what the solutions are.”

Solving for solvency

In the summer of 2024, French insurer Scor found itself in an urgent restructuring quandary. A profit warning ahead of its second quarter results saw the stock shed almost 20% in three days, threatening a solvency ratio that was already lagging peers.

The insurer needed to fortify its Solvency II balance sheet against interest rate stress tests to restore confidence ahead of its next quarterly results – due to be announced in November.

Traditional tools aimed at a solvency ratio uplift had already been exhausted, while a capital increase was seen as a last resort, due to shareholder dilution.

BNP Paribas proposed an alternative approach – a whole account stop-loss.

A rare solution, used only once before by a reinsurer, and in a different format, it sees the insurer enter into a retrocession agreement to transfer a portion of risk.

By transferring one-in-100-year risk to another party, the insurer is able to reduce the number of tail scenarios in its internal model and in turn reduce the amount of capital it must hold under the Solvency II framework. 

A reinsurance entity was critical for the deal to work. By chance, BNP Paribas’s global market division includes two separate reinsurance vehicles – used for other activities such as variable annuities – which it was able to repurpose for this new use case.

We’ve been in the business of trying to find solutions on the solvency ratio for almost 20 years, and this, I would say, is the most efficient one

Fatos Akbay, BNP Paribas

A key challenge was to deliver the solution in just three months. In some jurisdictions, regulatory approval for the vehicle alone can take up to 18 months.

Importantly, BNP already had the capability to sign a reinsurance treaty through its Irish entity, as well as the ability to underwrite and distribute €500 million of risk.

The deal closed just days ahead of the third-quarter results announcement, in which the insurer reported a solvency ratio of 203%, deemed to be “within the optimal range,” and a two-point increase on end-of-June levels.

François de Varenne, Scor’s deputy chief executive said on an analyst call that the “efficient third-party capital solution” which covers risk from January 2025 for three years, provided eight points of solvency relief for the quarter, rising to 10 points on a full-year basis.

Scor chief executive Thierry Léger described the trade as “a very efficient tool for us in terms of providing capital, so we could imagine [continuing] to use this as part of our toolbox of efficient capital”.

Géraud Redor, BNP Paribas

BNP Paribas believes the tool will be more relevant in future for other reinsurance companies to structure their capital, compared to alternatives. Alternatives such as issuing bonds have implications on leverage and ratings, while the efficiency of contingent capital was lost after reform of the Solvency II framework.

“We’ve been in the business of trying to find solutions on the solvency ratio for almost 20 years, and this, I would say, is the most efficient one,” says Fatos Akbay, head of global markets structuring, Emea, BNP Paribas.

Around one third of the risk was retained on the bank’s balance sheet and the remainder recycled externally to a reinsurer – a critical requirement for a structure the bank hopes to repeat with other insurers.

Géraud Redor, Emea head of strategic equity and private side structuring, BNP Paribas, says: “The reason why we didn’t want to keep the full size on our balance sheet is that we expect to replicate this transaction with other clients. So we don’t want to use the full capacity just in one single transaction.”

Akbay compares the approach to significant risk transfer deals for banks.

“The risk you sell is not the same, but you’re taking a piece of your overall risk that you normally take as a business and you’re packaging it efficiently and sharing it with investors,” he says. “You’re paying handsomely for such risks because it gives you some capital benefits.”

Ratings support

In its home market, BNP Paribas devised a structured equity transaction to help investment manager Wendel maintain an investment grade rating following its €1 billion purchase of private credit specialist Monroe Capital.

Part of a strategic ambition by  Wendel to build a third-party private asset management platform, the investment pushed loan-to-value ratio above a critical 20% threshold, leading S&P to put the firm’s BBB rating on negative watch.

To avoid a downgrade, the obvious solution was to sell a stake in testing and certification firm Bureau Veritas, which represents around 45% of the net asset value of Wendel’s equity portfolio.

For Bureau Veritas, which had recently released a new strategic plan, a divestment by its largest shareholder could not have been more poorly timed.

Wendel was also reluctant to relinquish a stock at dampened levels, where it saw healthy upside.

BNP Paribas devised a strategic equity transaction that saw Wendel maintain exposure to the upside of the shares, as well as voting rights.

This combined a three-year prepaid forward, which the bank executed on a sole basis, with a call spread providing limited upside exposure to the shares over the life of the trade. The options piece was executed by BNP Paribas, which took 75%, and Morgan Stanley, which took 25%.

To be treated as a true disposal from a ratings perspective, the transaction was structured to ensure that corporate actions on Bureau Veritas, such as a tender offer or merger, do not trigger an early unwind of the transaction, which would be the norm in these kinds of transactions. 

On March 12, BNP Paribas executed the delta associated with the transaction via a €750 million accelerated bookbuilding exercise. The bank organied a wall-crossing process of investors and the transaction was executed in volatile markets at a 5% discount versus the last close.