Brown-Forman, a diversified producer and marketer of brand-name drinks including Jack Daniel's, Southern Comfort and Fetzer Wines, has entered a foreign exchange collar to hedge GBP3 million (USD5 million) of sterling sales. Roger Shannon, assistant treasurer in Louisville, Ky., said the corporate regularly enters collars on foreign currencies and sterling is one of its largest exposures because of U.K. sales. The size and number of trades varies according to sales patterns with sales generally picking up in the run up to Christmas, he noted.
In the collar, Brown-Forman buys puts struck at USD1.60 and finances the trade by selling calls at USD1.70. It has a one-year maturity. It prefers to enter collars than forwards because it protects it against a worst case scenario but maintains potential upside participation, he noted. JPMorgan is the counterparty on the trade. Adam Castellani, spokesman did not return calls.
The drinks manufacturer selects counterparties from a list of five firms it has relationships with, Shannon said.
