Marquez-The Borrowing Process and Loan - Commonwealth

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					Borrowing & The Loan Cycle

 Debt negotiation & Re-Negotiation Workshop
               Hotel Terra Nova
              Kingston, Jamaica
         November 6th – 10th 2006
Objectives of the session

 n   To Understand the borrowing process

 n   To understand the mechanism of loan
     contracting (Loan Cycle)

 n   Relationship between stages in the loan
     cycle and debt management functions
The Loan Cycle

n   Refers to the period covering all action involved in
    a loan management. Starts from the time it is
    been negotiated till the time it is fully paid off.

n   The period could be as short as one month or
    could be as long as 40 yrs.

n   The loan cycle is comprised of the steps taken
    to make and maintain a loan and should be
    carefully monitored at every stage.
      The Loan Cycle

                          Instrument becomes

     Fulfill conditions                        Debt service: Interest begins,
       precedent                                  then after grace period
                                                    principal, other fees

 Negotiate loan &
  sign agreement                                          Debt reduces or
                                                         changes over time

Assess borrowing
     needs                                              Instrument matures
    Borrowing Needs

n   Assessment of Borrowing Needs
    n   Careful examination of the borrowing needs (Why
    n   Does the country have capacity to absorb & use the
        technology involved productively.
    n   Would there be enough capacity to pay back the loan as
        per agreed Terms and Conditions
    n   Identification of the appropriate type & source of credit
    n   The impact of the new loan on the existing debt portfolio.
    Loan Cycle - Negotiation

n   Selection & Negotiations of the loan agreement
     n The process can be very complex

     n Strategies on how to approach potential

     n Demonstrate your ability to repay the loan

     n Provide Economic Information Memorandum
    Loan Cycle - Conditions Precedent

n   Fulfilment of conditions precedent
    n   Conditions set forth which must be complied with by
        borrower before the loan is available for disbursement.

    n   These conditions vary from creditor to creditor. But the
        common ones includes:
         n   Board resolution authorising execution of such loan
         n   Satisfactory Legal opinion from both parties
         n   Govt/CB approval on all relevant financial matters
Loan Cycle - Loan Effectiveness (1)

 n   Signing of loan agreement
      n Authorised representative signatures from both

      n It is just a confirmation for execution. Not

        automatic that funds are available for
      n Commitment fees or Management fees could

        be charged thereafter on the CUB
    Loan Cycle –Loan Effectiveness (2)

n   Loan effective (available for draw-down)
     n Availability period would always be fixed

     n No withdrawals allowed after the availability

       period (Final Disbursement Date)
     n The period can be extended upon borrowers

    Loan Cycle - Disbursements

n   Disbursements
    n   Draw down can be in one or several instalments

    n   Interest calculations will be triggered on the DOD

    n   CUB after final disbursement date (terminal date) may be
        automatically cancelled unless otherwise discussed &

    n   There could be a possibility to negotiate for
    Loan Cycle - Debt Service Payments

n   Debt Service Payments

    n   Principal payments immediately after the grace
        period payable in instalments
    n   Interest payments charged on DOD payable in
    n   Other payments (CTF, MF, AGF, etc)
    Loan Cycle - Other Developments

n   Other Developments
    n   In the process of L/Cycle, other actions might
        occur to affect the original L/A as well as
        maturity of the loan. These include:
    Loan Cycle - Other Developments (2)

n   Enhancements
    n   For some reasons the original loan amount
        may no longer be enough to accomplish the
        intended project.
    n   Thus require additional funds
    Loan Cycle - Other Developments (3)

n   Cancellations
    n   Disbursed amount appeared to be more than
        what was exactly required for the project.
    n   The excess amount no longer required.
    Loan Cycle - Other Developments (4)

n   Restructuring
    n   The Profile of the loan repayment can be
        amended through a number of restructuring

         n   Rescheduling/Write-off/Refinancing/Prepayment

         n   Debt Conversion/Swap/Buyback
Loan Cycle - Other Developments (5)

n   Loan Recall
    n   Creditor may decide to terminate the contract
        and declare the entire loan due together with

    n   This is in the case of borrower default /
Loan matures

n   Loan is fully paid up: - no amount remains
    outstanding on the loan
n   Loan is forgiven:- Outstanding amounts are
    written off
n   Loan Account is closed and the cycle ends.
The Borrowing Process & The Loan Cycle

  Thank You For Your Attention

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