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INTER-AMERICAN DEVELOPMENT BANK
Conversion of Adjustable Rate Loans
October 30, 2008
Inter-American Development Bank
Conversion of Adjustable Rate Loans
Agenda:
1. Business Case
2. IDB Financial Lending Products
3. Description of Conversion Offer
4. Cost Components
5. Implementation/Legal Issues
6. Timeline
2
Inter-American Development Bank
Conversion of Adjustable Rate Loans
Business Case:
• Borrowers have expressed strong interest in getting away from pool
based financial products towards market based instruments.
• Borrowers place high value to flexible financial instruments that can
be hedged in the market place and provide more value added
features.
• Borrowers see strong benefits in being able to blend IDB’s funding
sources with other financing sources to achieve desired asset/liability
management strategies.
• Borrowers prefer instruments that promote price transparency and
are consistent with market practices.
• World Bank and other MDBs moved to market based financial
products since 2000. IDB is lagging in this respect.
• Preliminary feedback from various borrowers is very positive to a
potential one time offer by the IDB to convert OLBs of pool based
loans to market based rates.
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Inter-American Development Bank
Conversion of Adjustable Rate Loans
IDB Financial Lending Products
Legacy Products Current Products
- closed for new approvals: - open for new approvals: - through Conversion:
CPS Fixed at Disb LCF
CPS ADJ ELF
DW Fixed/Float PSL
SCF LIBOR
SCF Fixed
SCF ADJ New Proposal:
LIBOR 1
Fixed 1
LIBOR 2
Fixed 2
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Inter-American Development Bank
Conversion of Adjustable Rate Loans
Description of Conversion Offer:
1. Conversion is voluntary since it requires loan contract modification.
2. Conversion will be offered from CPS ADJ and SCF ADJ into USD LIBOR
and USD Fixed Rate or any combination thereof.
3. This a one-time offer, but will have two execution dates to
accommodate different types of borrowers.
4. Borrowers decide on loan conversion at the loan level.
5. Conversions will be executed at market rates ensuring equally fair
treatment of borrowers leaving the pool to borrowers staying in it.
6. Converted loans will be subject to cost reimbursement in case of pre-
payments.
7. Undisbursed balances of converted loans will also carry the post-
conversion interest rate (once disbursed).
8. Following the desired TELR, 38% equity funding will be included in the
pricing of conversions
9. SCF ADJ will be closed for new approvals.
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Inter-American Development Bank
Conversion of Adjustable Rate Loans
Cost Components: SCF
SCF - Projected Balances
24,000
22,000
Equity (max. 38%)
20,000 New Debt
Existing Debt (Floating Rate)
18,000
Existing Debt (Fixed Rate)
16,000 OLB (from Disb+Undisb)
14,000
US$ million
12,000
10,000
8,000
6,000
4,000
2,000
0
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Inter-American Development Bank
Conversion of Adjustable Rate Loans
Cost Components: CPS
CPS - Projected Balances
14,000
13,000
Equity (max. 38%)
12,000
New Debt
11,000 Existing Debt (Floating Rate)
10,000 Existing Debt (Fixed Rate)
OLB (from Disb+Undisb)
9,000
8,000
US$ million
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
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Inter-American Development Bank
Conversion of Adjustable Rate Loans
Timeline:
Technical Conversion Conversion
Briefing Date Date
to Board 1 2
Doc. Doc. Deadline Deadline
Sub- Approval for for
mission Sign-up Sign-up
2009 2010
9/5 9/12 9/19 9/26 10/3 10/10 10/17 10/24 10/31 11/7 11/14 6/30 7/31 6/30 7/31
Document Preparation
EXD Consideration
Promotion of Offer
Contract Modifications
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