libor-based loan (lbl)
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
LIBOR-Based Loan (LBL)
• Treasury Department• Controller’s Department• Office of the General Counsel
Introduction to Maturity-based Pricing
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
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LBL Main Features
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Background
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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
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.
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Maturity Premium(Sovereign and sovereign-guaranteed borrowers, other than project design facility)
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Average Loan MaturityMaturity Premiuma
Less than or equal to 13 years NIL
Greater than 13 years up to 16 years 0.10%
Greater than 16 years up to 19 years 0.20%
• 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
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
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Sample Calculation of Average Loan Maturity
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Loan Amount: US$ 60 millionLoan Term (inc. Grace Period):5 yearsGrace Period: 2 yearsRepayment Term: Straight-Line
Semi-Annual Frequency
Principal Repayments
Weighted Repayments
(A) (B) C = (A x B)Grace Period0.501.001.502.00Repayment Period2.50 10.00 25.00 3.00 10.00 30.00 3.50 10.00 35.00 4.00 10.00 40.00 4.50 10.00 45.00 5.00 10.00 50.00
Sum 60.00 225.00
3.75 years= Sum of C / Sum of B= 225.00 / 60.00 Average Loan Maturity
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
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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
LBL Repayment Terms
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Repayment Terms
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Repayment Methods Annuity 'A' Annuity 'B'
Discount Rate : 10.00% 5.00%
11.05 10.66 10.25 10.70 15.00Time
(Years)Repayment Date
0.5-5.0 Oct-15-2012 to Apr-15-2017
5.5 Oct-15-2017 1,814,555 2,348,828 3,000,000 2,000,000
6.0 Apr-15-2018 1,905,283 2,407,548 3,000,000 2,000,000
6.5 Oct-15-2018 2,000,547 2,467,737 3,000,000 2,500,000
7.0 Apr-15-2019 2,100,574 2,529,431 3,000,000 2,500,000
7.5 Oct-15-2019 2,205,603 2,592,666 3,000,000 2,500,000
8.0 Apr-15-2020 2,315,883 2,657,483 3,000,000 2,500,000
8.5 Oct-15-2020 2,431,678 2,723,920 3,000,000 3,000,000
9.0 Apr-15-2021 2,553,261 2,792,018 3,000,000 3,000,000
9.5 Oct-15-2021 2,680,925 2,861,819 3,000,000 3,000,000
10.0 Apr-15-2022 2,814,971 2,933,364 3,000,000 3,000,000
10.5 Oct-15-2022 2,955,719 3,006,698 3,000,000 3,000,000
11.0 Apr-15-2023 3,103,505 3,081,866 3,000,000 3,000,000
11.5 Oct-15-2023 3,258,680 3,158,912 3,000,000 3,500,000
12.0 Apr-15-2024 3,421,615 3,237,885 3,000,000 3,500,000
12.5 Oct-15-2024 3,592,695 3,318,832 3,000,000 3,500,000
13.0 Apr-15-2025 3,772,330 3,401,803 3,000,000 3,500,000
13.5 Oct-15-2025 3,960,947 3,486,848 3,000,000 3,500,000
14.0 Apr-15-2026 4,158,994 3,574,019 3,000,000 3,500,000
14.5 Oct-15-2026 4,366,944 3,663,370 3,000,000 3,500,000
15.0 Apr-15-2027 4,585,291 3,754,954 3,000,000 3,500,000 60,000,000
Total 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000
Custom
Average Loan Maturity
Bullet
Grace Period
Straight / Equal
Loan Amount:US$ 60 million
Loan Term(inc. Grace Period):15 years
Grace Period:5 years
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Sample Average Loan Maturity and Maturity Premium Computation:
Loan amount: US$ 60 millionLoan Term(inc. Grace Period): 20 yearsGrace Period: 5 years
Average Loan Maturity (10% Annuity):14.52 yearsMaturity Premium:0.10%
Average Loan Maturity (Equal Repayments):12.75 yearsMaturity Premium:NIL
Repayment Methods Annuity 'A'Discount Rate : 10.00%
14.52 12.75Time
(Years)Repayment Date 0.10 % Premium NIL
Start Apr-15-2012
0.5-5.0 Oct-15-2012 to Apr-15-2017
5.5 Oct-15-2017 903,086 2,000,000
6.0 Apr-15-2018 948,240 2,000,000
6.5 Oct-15-2018 995,652 2,000,000
7.0 Apr-15-2019 1,045,435 2,000,000
7.5 Oct-15-2019 1,097,707 2,000,000
8.0 Apr-15-2020 1,152,592 2,000,000
8.5 Oct-15-2020 1,210,222 2,000,000
9.0 Apr-15-2021 1,270,733 2,000,000
9.5 Oct-15-2021 1,334,269 2,000,000
10.0 Apr-15-2022 1,400,983 2,000,000
10.5 Oct-15-2022 1,471,032 2,000,000
11.0 Apr-15-2023 1,544,584 2,000,000
11.5 Oct-15-2023 1,621,813 2,000,000
12.0 Apr-15-2024 1,702,904 2,000,000
12.5 Oct-15-2024 1,788,049 2,000,000
13.0 Apr-15-2025 1,877,451 2,000,000
13.5 Oct-15-2025 1,971,324 2,000,000
14.0 Apr-15-2026 2,069,890 2,000,000
14.5 Oct-15-2026 2,173,384 2,000,000
15.0 Apr-15-2027 2,282,054 2,000,000
15.5 Oct-15-2027 2,396,156 2,000,000
16.0 Apr-15-2028 2,515,964 2,000,000
16.5 Oct-15-2028 2,641,762 2,000,000
17.0 Apr-15-2029 2,773,850 2,000,000
17.5 Oct-15-2029 2,912,543 2,000,000
18.0 Apr-15-2030 3,058,170 2,000,000
18.5 Oct-15-2030 3,211,079 2,000,000
19.0 Apr-15-2031 3,371,633 2,000,000
19.5 Oct-15-2031 3,540,214 2,000,000
20.0 Apr-15-2032 3,717,225 2,000,000
Total 60,000,000 60,000,000
Straight / Equal
Average Loan Maturity
Average Loan Maturity Table(Annuity-type Repayment – 10% Annuity)
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1 2 3 4 5 6 7 812345 3.38 3.82 4.28 4.76 6 3.95 4.38 4.82 5.28 5.76 7 4.54 4.95 5.38 5.82 6.28 6.76 8 5.14 5.54 5.95 6.38 6.82 7.28 7.76 9 5.76 6.14 6.54 6.95 7.38 7.82 8.28 8.76
10 6.40 6.76 7.14 7.54 7.95 8.38 8.82 9.28 11 7.05 7.40 7.76 8.14 8.54 8.95 9.38 9.82 12 7.71 8.05 8.40 8.76 9.14 9.54 9.95 10.38 13 8.39 8.71 9.05 9.40 9.76 10.14 10.54 10.95 14 9.09 9.39 9.71 10.05 10.40 10.76 11.14 11.54 15 9.79 10.09 10.39 10.71 11.05 11.40 11.76 12.14 16 10.52 10.79 11.09 11.39 11.71 12.05 12.40 12.76 17 11.25 11.52 11.79 12.09 12.39 12.71 13.05 13.40 18 12.00 12.25 12.52 12.79 13.09 13.39 13.71 14.05 19 12.76 13.00 13.25 13.52 13.79 14.09 14.39 14.71 20 13.53 13.76 14.00 14.25 14.52 14.79 15.09 15.39 21 14.31 14.53 14.76 15.00 15.25 15.52 15.79 16.09 22 15.11 15.31 15.53 15.76 16.00 16.25 16.52 16.79 23 15.91 16.11 16.31 16.53 16.76 17.00 17.25 17.52 24 16.73 16.91 17.11 17.31 17.53 17.76 18.00 18.25 25 17.55 17.73 17.91 18.11 18.31 18.53 18.76 19.00 26 18.39 18.55 18.73 18.91
Loan Term(inc. Grace period)
Grace Period
Loan Term(inc. Grace Period): 20 yearsGrace Period: 5 years
Average Loan Maturity (10% Annuity):14.52 years
Average Loan MaturityMaturity Premium
≤ 13 years NIL
> 13 years up to 16 years 0.10%
> 16 years up to 19 years 0.20%
Average Loan Maturity Loan (Equal Repayments)
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1 2 3 4 5 6 7 812345 3.25 3.75 4.25 4.75 6 3.75 4.25 4.75 5.25 5.75 7 4.25 4.75 5.25 5.75 6.25 6.75 8 4.75 5.25 5.75 6.25 6.75 7.25 7.75 9 5.25 5.75 6.25 6.75 7.25 7.75 8.25 8.75
10 5.75 6.25 6.75 7.25 7.75 8.25 8.75 9.25 11 6.25 6.75 7.25 7.75 8.25 8.75 9.25 9.75 12 6.75 7.25 7.75 8.25 8.75 9.25 9.75 10.25 13 7.25 7.75 8.25 8.75 9.25 9.75 10.25 10.75 14 7.75 8.25 8.75 9.25 9.75 10.25 10.75 11.25 15 8.25 8.75 9.25 9.75 10.25 10.75 11.25 11.75 16 8.75 9.25 9.75 10.25 10.75 11.25 11.75 12.25 17 9.25 9.75 10.25 10.75 11.25 11.75 12.25 12.75 18 9.75 10.25 10.75 11.25 11.75 12.25 12.75 13.25 19 10.25 10.75 11.25 11.75 12.25 12.75 13.25 13.75 20 10.75 11.25 11.75 12.25 12.75 13.25 13.75 14.25 21 11.25 11.75 12.25 12.75 13.25 13.75 14.25 14.75 22 11.75 12.25 12.75 13.25 13.75 14.25 14.75 15.25 23 12.25 12.75 13.25 13.75 14.25 14.75 15.25 15.75 24 12.75 13.25 13.75 14.25 14.75 15.25 15.75 16.25 25 13.25 13.75 14.25 14.75 15.25 15.75 16.25 16.75 26 13.75 14.25 14.75 15.25 15.75 16.25 16.75 17.25 27 14.25 14.75 15.25 15.75 16.25 16.75 17.25 17.75 28 14.75 15.25 15.75 16.25 16.75 17.25 17.75 18.25 29 15.25 15.75 16.25 16.75 17.25 17.75 18.25 18.75 30 15.75 16.25 16.75 17.25 17.75 18.25 18.75
Grace Period
Loan Term(inc. Grace period)
Average Loan MaturityMaturity Premium
≤ 13 years NIL
> 13 years up to 16 years 0.10%
> 16 years up to 19 years 0.20%
Loan Term(inc. Grace Period): 20 yearsGrace Period: 5 years
Average Loan Maturity (Equal Repayments):12.75 years
Comparison of Current and Revised ADB, and Current IBRD Loan Pricing (in basis points)
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ItemADB
(Current)
ADB (Revised) IBRDa
≤ 13 years
> 13 years up to 16 years
> 16 years up to 19 years
up to12 years
12–15years
15–18years
A. Interest Spread
1. Contractual spread 40 40 40 40 50 50 50
2. Maturity premium 10 20 10 20
3. Funding cost marginb (21) (21) (21) (21) (21) (21) (21)
4. Net spread over LIBOR (I) 19 19 29 39 29 39 49
(A.1 + A.2 + A.3)
B. Commitment Charge 15 15 15 15
Spread equiv. – commit. chargec (II) 10 13 12 11
C. Front-End Fee 25 25 25
Spread equiv. of front-end feec (III) 5 4 4 D. Total Spread Equiv. over LIBOR (I + II + III) 29 32 41 50 34 43 53
a IBRD uses a variable spread loan charge based on average loan maturity.b Funding cost margin as of 1 July 2011c Based on disbursement profiles and repayment terms and could vary across MDBs.
Source: ADB Treasury Department.
(for loan with formal negotiations completed on or after 1 April 2012)Loan Charges Basis %
A. Net Lending Rate
Cost Base Rate Adjusted every 6 months 6-month LIBOR
Effective Contractual Spread
Fixed for the life of the loan(Loan Negotiation Date)
0.40%
Maturity PremiumFixed for the life of the loan
(Average Loan Maturity)
≤ 13 years NIL>13 years up to 16 years 0.10%> 16 years up to 19 years 0.20%(with limit of 19 years average loan maturity)
Rebate/Surcharge on Funding Cost Margin
Adjusted every 6 months(ADB calculation)
-0.19% (Applicable for 1 Jan – 30 Jun
2012)
B. Commitment ChargeApplied on full amount of
undisbursed balance0.15%
C. Front-End Fee (FEF) Eliminated J̶
Loan Charges (US$)(Sovereign and Sovereign-guaranteed LBLs)
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LBL Net Lending Rate(Sample pricing for a sovereign loan with a 15-year average loan maturity)
USDCost base rate 6-month LIBOR
Effective contractual spread 0.40%
Maturity premium 0.10%
Less: Rebate on funding cost margin -0.19%
Net lending rate 6-month LIBOR + 0.31%
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(for loan with formal negotiations completed on or after 1 April 2012)
Loan Processing
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• 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.
Summary
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• 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.
Average Loan MaturityMaturity Premium
Less than or equal to 13 years NIL
Greater than 13 years up to 16 years 0.10%
Greater than 16 years up to 19 years 0.20%
A. Maturity-based Pricing
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.
Thank you.
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