Conversion, Transformation and Prepayment Options for VSLs

Currency and Interest Rate Conversions: VSLs do not have embedded currency conversion options. A borrower may transform the currency of denomination or the LIBOR portion of the interest rate applicable to the obligation by entering into currency or interest rate swaps with IBRD.

Interest Rate Caps/Collars: A borrower that is interested in setting limits on the LIBOR portion of the interest rate may purchase an interest rate cap (upper limit) or collar (upper and lower limits) from IBRD. To access these free-standing hedge transactions, the borrower must first enter into a Master Derivatives Agreement (MDA) with IBRD

Transaction Fees for Hedging Products: expressed as a percentage per annum on the principal amount hedged unless otherwise indicated.

1 An additional fee for convertibility risk may apply for local currency swaps. The amount of this fee is determined on a country-by-country basis.
2 Expressed as a percentage of the principal amount involved, and payable as a lump sum.

Transformation to Fixed Spread Terms: VSLs may be transformed to FSLs through amendments to the relevant Loan Agreements. The fixed spread applicable to the new Fixed Spread Loans (“Transformed Loans”) will be the spread prevailing as of the effective date of the amendment. The borrower may access conversion options without the need for an MDA after transformation to fixed spread terms. The applicable spread for transformed loans is determined according to the remaining average maturity of the loan.

Fixed Spreads³ Applicable to Transformed Loans: As of September 24, 2009

1.  Loan charge waivers may apply.
2. VSLs signed between May 16, 2007 and September 27, 2007 had the option to retroactively apply the 30 basis point lending spread that was applicable to loans signed on or after September 28, 2007.  This option expired on March 31, 2009. Borrowers that did not elect to take this option will, upon transformation, have an applicable fixed spread equal to that for loans of the relevant remaining average maturity whose invitations to negotiate were issued on or after July 31, 1998 and the loan agreements signed before May 16, 2007.
3. An additional fee of 0.03% per annum applies to Transformed Loans, and is added to the Fixed Spread..

Fixed spreads are reviewed periodically to ensure that pricing is responsive to changes in the underlying components.

Prepayment Options: The borrower may prepay all or any part of the disbursed and outstanding loan balance at any time.

Prepayment charges may apply. The prepayment premium will consist of IBRD’s redeployment cost of the prepaid loan amount, as reasonably determined by IBRD. The redeployment cost is derived from the difference between the contractual lending spread of the prepaid loan and the contractual lending spread in effect for VSLs in the currency of the prepaid loan at the date of prepayment. In the event of currency substitution, no prepayment fee would be charged while a substitute currency is outstanding. In the event of prepayment of amounts that were swapped under a currency or interest rate hedge, the swap will be terminated automatically and the borrower would (i) pay a transaction fee and (ii) pay or receive, as the case may be, an unwinding amount arising from the unwinding of any transaction related to any swap in effect with the borrower.

 

Fixed Rate Single Currency Loan

As of December 1999, Fixed-rate SCLs are no longer available for new loan commitments.

The lending rate for each fixed-rate SCL is set on semiannual rate-fixing dates for loan amounts (Disbursed Amounts) disbursed during the preceding six-month period. The rate remains fixed for such Disbursed Amounts until they are repaid. In effect, a fixed-rate SCL is like a series of fixed-rate subloans, comprising as many fixed-rate subloans as semesters in which disbursements occur. The fixed lending rate is based on the fixed-rate equivalent of six-month LIBOR for the loan currency corresponding to the maturities of the Disbursed Amount on its rate-fixing date. It is not a direct pass-through of the Bank's funding costs, and it includes a risk premium to compensate the Bank for market risks incurred in funding these loans. For the interim period from the date each disbursement is made until its rate-fixing date, interest accrues at the same rate as is applicable to LIBOR-based single currency loans for such period.

Conversion, Prepayment and Transformation Options

Currency and Interest Rate: Fixed-rate SCLs do not have embedded currency and interest rate conversion options. A borrower may transform the currency of denomination or the interest rate applicable to  the obligation by entering into a currency or interest rate swap with IBRD. To access these free-standing hedge transactions, the borrower must first enter into a Master Derivatives Agreement (MDA) with IBRD.

Interest Rate Caps/Collars: As Fixed-rate SCLs do not have embedded interest rate caps or collars, a borrower that is interested in setting limits on the variable interest rate may purchase an interest rate cap (upper limit) or collar (upper and lower limit) from IBRD under the terms of an MDA with IBRD.

Transaction Fees for Hedging Products: Expressed as a percentage per annum on the principal amount hedged unless otherwise indicated.

1 An additional fee for convertibility risk may apply for local currency swaps. The amount of this fee is determined on a country-by-country basis.
2 Expressed as a percentage of the principal amount involved, and payable as a lump sum.

Transformation to Fixed Spread Terms: Fixed-rate SCLs may be transformed to Fixed Spread Loans (FSL) through amendments to the relevant Loan Agreements in order to introduce embedded options. The interest rate for a Fixed-rate SCL shall remain fixed as if an interest rate conversion had occurred immediately upon the Fixed-rate SCL’s transformation to an FSL. An additional fee of 0.03% per annum will apply.  The borrower may access conversion options without the need for an MDA after transformation to fixed spread terms.

Prepayment: The borrower may prepay all or any part of the disbursed and outstanding loan balance at any time. The prepayment premium is based on the cost of redeploying the full amount of the loan to be prepaid from the date of prepayment to the original maturity date.  In the event of currency substitution, no prepayment fee would be charged while a substitute currency is outstanding. In the event of prepayment of amounts that were swapped under a currency or interest rate hedge, the swap will be terminated automatically and the borrower would (i) pay a transaction fee and (ii) pay or receive, as the case may be, an unwinding amount arising from the unwinding of any transaction related to any swap in effect with the borrower.

 

Disbursement Period and Repayment Terms of IBRD Loans: All IBRD loans disburse as projects and programs are being implemented. The disbursement period for project loans frequently extends over six to nine years. Structural and sectoral adjustment loans and other non-project loans are usually disbursed more quickly than project loans (i.e., within one to three years).

Fixed-Rate Single Currency Loans: Repayment terms for fixed-rate single currency loans are determined by the length of the disbursed period expected at the time the loan is made, as shown below. The amortization pattern for fixed-rate single currency loans is level repayment of principal for each Disbursed Amount.

 

1 For middle and higher income borrowing members, overall loan repayment terms would be limited to 17 years and 15 years, respectively.