1 / 20

LIBOR-Based Loan (LBL)

LIBOR-Based Loan (LBL). Introduction to Maturity-based Pricing. Treasury Department Controller’s Department Office of the General Counsel. Agenda. Main Features of LBL Maturity-based Pricing Background and Rationale Maturity Premium Average Loan Maturity Repayment Terms

maxine-day
Download Presentation

LIBOR-Based Loan (LBL)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. LIBOR-Based Loan (LBL) Introduction to Maturity-based Pricing Treasury Department Controller’s Department Office of the General Counsel

  2. Agenda • Main Features of LBL • Maturity-based Pricing • Background and Rationale • Maturity Premium • Average Loan Maturity • Repayment Terms • Sample Calculations • Comparison with MDBs • Summary • Q & A

  3. LBL Main Features

  4. Background • In the past, ADB has not differentiated its sovereign loan pricing according to the tenor of its loans. • Same lending spread is charged for a loan with 10-year maturity and 25-year maturity • Issues: • Price distortions • Lack of incentives to optimize loan terms • De facto subsidization among borrowers

  5. Rationale • Consistent with the pricing practices in the financial markets • Encourages borrowers to select a debt management approach driven more by a cost-benefit analysis • Improves economic efficiency, ensuring maturity and repayment profile of a loan properly reflect the actual cash flow requirements of the project • Eliminates the de facto subsidies that are implicit in the undifferentiated pricing structure.

  6. Maturity Premium (Sovereign and sovereign-guaranteed borrowers, other than project design facility) • Applicable to loans for which formal loan negotiations are completed on or after 1 April 2012 • The average loan maturity is subject to a limit of 19 years. • a To be applied for the entire life of the loan

  7. Average Loan Maturity • The weighted average time to repay a loan. • Considers both repayment dates and amounts to provide a better estimation of how quickly a loan is repaid • Average Loan Maturity = Sum of Weighted Repayments • Sum of Total Repayments

  8. Sample Calculation of Average Loan Maturity Loan Amount: US$ 60 million Loan Term (inc. Grace Period): 5 years Grace Period: 2 years Repayment Term: Straight-Line Average Loan Maturity

  9. LBL Repayment Terms - Considerations • Economic life of the project • Financial condition of the borrower • Revenue earning capacity of project • Debt service capacity of borrowing DMC • Borrower • Flexibility to tailor repayment terms during loan preparations • Repayment schedules cannot be changed after loan signing

  10. LBL Repayment Terms • Fixed at loan signing • Annuity with discount rate in any percentages • Straight-line • Bullet repayment • Custom-tailored repayment • Linked to disbursement in tranches • Straight-line

  11. Repayment Terms Loan Amount: US$ 60 million Loan Term (inc. Grace Period): 15 years Grace Period: 5 years

  12. Sample Average Loan Maturity and Maturity Premium Computation: Loan amount: US$ 60 million Loan Term (inc. Grace Period): 20 years Grace Period: 5 years Average Loan Maturity (10% Annuity): 14.52 years Maturity Premium: 0.10% Average Loan Maturity (Equal Repayments): 12.75 years Maturity Premium: NIL

  13. Average Loan Maturity Table (Annuity-type Repayment – 10% Annuity) Loan Term (inc. Grace Period): 20 years Grace Period: 5 years Average Loan Maturity (10% Annuity): 14.52 years

  14. Average Loan Maturity Loan (Equal Repayments) Loan Term (inc. Grace Period): 20 years Grace Period: 5 years Average Loan Maturity (Equal Repayments): 12.75 years

  15. Comparison of Current and Revised ADB, and Current IBRD Loan Pricing (in basis points) a IBRD uses a variable spread loan charge based on average loan maturity. b Funding cost margin as of 1 July 2011 c Based on disbursement profiles and repayment terms and could vary across MDBs. Source: ADB Treasury Department.

  16. Loan Charges (US$) (Sovereign and Sovereign-guaranteed LBLs) • (for loan with formal negotiations completed on or after 1 April 2012)

  17. LBL Net Lending Rate (Sample pricing for a sovereign loan with a 15-year average loan maturity) • (for loan with formal negotiations completed on or after 1 April 2012)

  18. Loan Processing • Borrowers should be notified by the project team of the applicability of the maturity premium as early as possible in the loan processing cycle. • The maturity premium for a proposed LBL should be agreed with the Borrower during the loan fact-finding mission and reflected in the memorandum of understanding or aide-memoire for the fact-finding mission.

  19. Summary A. Maturity-based Pricing • Applicable to loans with formal negotiations completed on or after 1 April 2012 • The average loan maturity is subject to a limit of 19 years. B. Choice of Repayment Terms is an important consideration given its effect on Average Loan Maturity C. Project team should discuss with the borrower on the applicability of maturity premium in the early stage of loan processing.

  20. Thank you.

More Related