B loan omj 2010


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B loan omj 2010

  1. 1. OMJ B-LOAN PROGRAM 2010
  2. 2. IDB - WHO WE ARE  The IDB provides solutions to development challenges in 26 countries of Latin America and the Caribbean, partnering with governments, companies and civil society organizations  The IDB lends money and provides grants. It also offers research, advice and technical assistance to improve key areas like education, poverty reduction and agriculture. Our clients range from central governments to city authorities and small businesses  The Bank also seeks to take a lead role on cross-border issues like trade, infrastructure and energy
  3. 3. IDB - WHO WE ARE  The IDB is the main source of multilateral financing and expertise for sustainable economic, social and institutional development in Latin America and the Caribbean.  26 Borrowing member and 22 non-borrowing member countries  $10 billion in approved lending and grants over the past 12 months  Backed by a AAA/Aaa rating by both Standard & Poors and Moody’s
  4. 4. IDB PRIVATE SECTOR  Responsible for leading the Bank’s operations without sovereign guarantee  Partners with commercial banks, institutional investors, co-guarantors, and other co-lenders to meet the growing of financial resources  Target clients:  Privately controlled entities in all sectors of the economy  Utilities and other infrastructure operators  Banks and other financial market institutions  State-owned companies without a sovereign guarantee  Corporates
  5. 5. OPPORTUNITIES FOR THE MAJORITY (OMJ)  Set up as an incubator within the private sector to drive innovation and best practices in applying market-based solutions to advance economic and social development at the base of the socioeconomic pyramid (BOP).  US$ 250 million set aside from the Bank’s Ordinary Capital.  Created to foster collaboration between the public and private sector, and civil society, to attract new resources to address poverty challenges in the region.  Target clients:  Private sector organizations, corporations, financial institutions, investment funds, and state-owned companies, without sovereign guarantees, operating in one or more of the 26 borrowing member countries of the IDB and interesting in engaging with the BOP.  Organizations should be in sound financial health and be able to demonstrate a good record of corporate governance and environmental and social responsibility.
  6. 6. OPPORTUNITIES FOR THE MAJORITY  The Opportunities to the Majority initiative supports project with the potential to deliver business solutions to the 360 million people in the region living at the base of the pyramid.  To be eligible for financing the project must be:  Financially and structurally sound.  Innovative and with the capacity to be repeated and brought up to scale once proven successful.  Structured to engage multiple stakeholders.  Lending highlights  Loans and partial credit guarantees  Market-rates  Long tenors  Technical assistance provided with loans.  Coverage between 25-50% of total project cost.
  7. 7. OPPORTUNITIES FOR THE MAJORITY Operating Principles  Invest in business solutions to achieve a positive impact on the lives of the majority.  Demonstrate that investing in underserved markets is good business.  Apply innovation and creativity to fulfill unmet human needs and contribute to economic growth.  Create new solutions through alliances with the public and private sectors and civil society.  Share risk among several partners.
  8. 8. MOBILIZATION MANDATE Excerpt from the 8th Replenishment “ 2.82 Mobilization of additional funds. As part of its cofinancing activities, the Bank will step up its efforts to mobilize additional resources, particularly from private sources, for priority development initiatives, and especially for infrastructure and public utility projects carried out by the private sector.”
  9. 9. IDB MOBILIZATION PRODUCT  A/B Loans  “A Loan” – IDB Loan Tranche  Usually the A Loan has a longer tenor than the B Loan  “B Loan” – Participation of Market Players (private investors like international banks, institutional investors and funds)  The B Loan is pari passu with the A Loan, sharing the risk of the deal  There is no guarantee on the B Loan from IDB  IDB is Lender of Record
  10. 10. B-LOAN STRUCTURE Participation Loan Agreement Agreement Participants Borrower B Loan A+B Loans  One loan agreement – IDB is lender of record and administers entire loan  IDB fully shares project risk with participants  Participation structure allows participants to benefit from IDB’s privileges and immunities
  11. 11. PREFERRED CREDITOR STATUS (PCS)  Preferred access to foreign exchange in the event of country foreign exchange shortage  Excluded from general country debt reschedulings  Not subject to mandatory new money obligations under general country debt rescheduling  Consistent universal recognition - Pakistan, Russia, Argentina  Bank regulators exempt B Loans from mandatory country risk provisioning  Allows rated transactions to pierce sovereign ceiling  Recognized mitigant of country risk under Basel II
  12. 12. PCS: CAPITAL TREATMENT OF B LOANS UNDER BASEL II  Standardized approach: Banks may apply the local currency rating of the borrower (as opposed to the foreign currency rating), recognizing the effective mitigation of transfer and convertibility risk  Advanced Internal Ratings-Based (IRB) approach: Banks may reflect the country risk mitigation afforded by the B loan structure through lower country risk weighting
  13. 13. B-LOAN ADVANTAGE Tenor profile in the region INVESTMENT NON INVESTMENT PROJECT GRADE GRADE FINANCE UNCOVERED Generally (Without MDB Up to 5 yrs. Up to 3 yrs. Unavailable * umbrella) B-LOAN 5 yrs. or greater 3 – 5 yrs. 10 – 14 yrs. * Chile and Mexico are the only countries where international lenders have felt comfortable lending on a project finance basis without an ECA guarantee or MDB umbrella
  14. 14. B-LOANS VS. SYNDICATED LOANS How do B-Loans differ from regular syndicated loans?  Participations vs. Assignments  Assignments create direct contractual rights with the borrower  Assigner becomes a “lender” with full voting and other rights  Participant’s rights and obligations vis-à-vis the borrower are derivative IDB’s rights and obligations  Lender of Record vs. Agency Role  IDB is not acting as agent  Agent is appointed by the lenders  Agent acts under instruction of lenders  Neither is a fiduciary
  15. 15. BENEFITS TO B-LOAN PARTICIPANTS  Participants share IDB’s Preferred Creditor Status and therefore mitigate transfer and convertibility risk  Where applicable, participants are exempt from mandatory country risk provisioning requirement  Environmental and Social leadership  Participants benefit from IDB’s relationship with host country governments (“halo effect”)  Basel II has recognized the value of B-Loans, which can result in lower ascribed capital allocation (can use local vs. foreign ratings)
  16. 16. BENEFITS TO B-LOAN BORROWER  B-Loans complete the entire financial package  Borrowers can achieve financing with longer tenors than without umbrella cover  B-Loan syndication can introduce new lending relationships to the Borrower  Simplified administration with one point of contact  Transaction is exempt from withholding tax
  17. 17. BENEFITS OF B-LOANS TO IDB  Helps the Bank meet its catalytic role  Tool to spread the credit risk exposure  Mobilization of funds  Gain additional sector expertise from other market players  Maintain our finger on the pulse of the market
  18. 18. PARTICIPANT’S VOTING RIGHTS  100%: Change in money terms  100%: Waive or amend conditions precedent  67%: Acceleration by IDB at request of Participants  67%: Release security or waive negative pledge  67%: Waive or amend guarantees or support arrangements  67%: Change in ownership control provision  51%: Waive or amend financial covenants  Consult: Waive or amend non-financial covenants (Percentages reflect consent level required, based on total B Loan amount)
  19. 19. INFORMATION SHARING IDB shares with Participants all information we receive from Borrowers under the Loan Agreement This includes:  Regular financial reporting  Knowledge of key credit events
  20. 20. PARTICIPANT ELIGIBILITY  Objective participant eligibility criteria  “Eligible Financial Institution”  Not incorporated or residing in the country of the borrower or the project  Not an export credit, governmental, or multilateral agency  International investment grade rating from Fitch, Moody’s or S&P  Non-investment grade and unrated financial institutions may be considered on a case-by-case basis
  21. 21. B-LOANS VS. SYNDICATED LOANS Participants in B-Loans have limited rights compared to typical syndicated loans B-Loan Syndicated Loan  Consent right on “money” terms  Full voting rights on all credit and (unanimous), security (67% majority) administrative matters and financial covenants (51% majority), subject to materiality  Lender has full legal recourse to Borrower  Has no contractual relationship with Borrower  Disposals subject to Borrowers approval, but no limitations under  Disposals are subject to IDB approval default scenario
  22. 22. B-LOAN PROGRAM Number of B-Loans Closed: 64 Historical Results Amount of B-Loan mobilized: $6.38 billion Number of historical participants: 124 institutions
  23. 23. PERFORMANCE HISTORY % write-off / A-loan outstanding (which has B Loan) 8% 7% 6% 5% 4% 3% 2.16% 2% 0.48% 1% 0.47% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0% 0.00% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -1% % Impaired Loan / A-loan outstanding (which has B Loan) 50% 45% 40% 35% 30% 23% 25% 21% 19% 18% 20% 15% 12% 10% 6% 7% 5% 0% 0% 0% 0% 0% 0% 0% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
  24. 24. SYNDICATIONS TEAM CONTACTS Jozef Henriquez Chief of Syndications Unit Tel: (1) 202-623-1424 Email: jozefh@iadb.org Kristin Dacey Jaspreet Birk Kentaro Aoyama Syndications Officer Associate Syndications Officer Syndications Officer Tel: (1) 202-623-3349 Tel: (1) 202-623-2345 Tel: (1) 202-623-2811 Email: kristind@iadb.org Email: jaspreetb@iadb.org Email: kentaroa@iadb.org Eliana Duque Office Assistant Tel: (1) 202-623-3731 Email: elianad@iadb.org