Hillside Pharmaceuticals is an Irish firm that manufactures generic drugs. 95% of its customers are in the

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Hillside Pharmaceuticals is an Irish firm that manufactures generic drugs. 95% of its customers are in the Euro area.

It has recently completed construction of a new fabrication facility in Cork, including a state of the art clean room. The total cost of construction and fit-out is 25 million. The business' current turnover is close to 9 million.

The construction was funded by two loans. The first was a loan of 15 million from Bank of Ireland and the second is a loan of 10 million from Citibank. Each loan is 20 years maturity. That means it is repayable in 2043.

The Bank of Ireland loan has 6 month interest rollovers at a rate of EURIBOR+200 basis points. The Citibank loan also has 6 month interest rollovers at a rate of EURIBOR+175 basis points.

The following are the swap rates provided by AIB Bank for a business like Hillside.

EURIBOR Rates	AIB Euro Swap Rates
1 Week	2.368%	1 Year	3.700%
1 Month	2.487%	2 Years	3.736%
2 Months	2.595%	3 Years	3.587%
3 Months	2.783%	4 Years	3.380%
6 Months	3.311%	5 Years	3.284%
9 Months	3.500%	6 Years	3.242%
12 Months	3.745%	7 Years	3.220%
		8 Years	3.120%
		9 years	3.050%
		10 years	3.050%

The Hillside finance director has also received an indicative price for interest rate caps of 25 basis points for each 50 basis points at which the strike price is out of the money. It increases by 20 basis points for each year the cap is in place.

The Treasury Policy prevents the business from hedging interest rate risk beyond 10 years.

Hillside's finance director informs you that the business wants to minimise its interest costs, though she also says that the business has tight profit margins and strong competitors that compete on price.

How would you advise this business on its appropriate interest rate risk management strategy, based on the information provided above, their objectives, and your view on money market developments.