LIBOR-Based Loan (LBL)
Introduction to Maturity-based Pricing
• Treasury Department
• Controller’s Department
• Office of the General Counsel
Agenda
2

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
LBL Main Features
3
Background
4

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
5

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.
Maturity Premium
(Sovereign and sovereign-guaranteed borrowers, other than
project design facility)
• Applicable to loans for which formal loan negotiations are
completed on or after 1 April 2012
Average Loan Maturity
Less than or equal to 13 years
Maturity Premiuma
NIL
Greater than 13 years up to 16 years
0.10%
Greater than 16 years up to 19 years
0.20%
• The average loan maturity is subject to a limit of 19 years.
a
6
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
7
Sample Calculation of Average Loan Maturity
Semi-Annual
Principal
Frequency
Repayments
(A)
(B)
Grace Period
0.50
1.00
1.50
2.00
Repayment Period
2.50
10.00
3.00
10.00
3.50
10.00
4.00
10.00
4.50
10.00
5.00
10.00
Sum
= Sum of C / Sum of B
= 225.00 / 60.00
8
60.00
Weighted
Repayments
C = (A x B)
Loan Amount:
US$ 60 million
Loan Term (inc. Grace Period): 5 years
Grace Period:
2 years
Repayment Term:
Straight-Line
25.00
30.00
35.00
40.00
45.00
50.00
225.00
3.75 years
Average Loan Maturity
LBL Repayment Terms - Considerations
9

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
LBL Repayment Terms
 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
10
Repayment Terms
Repayment Methods
Annuity 'A'
Annuity 'B'
Discount Rate :
10.00%
5.00%
Average Loan Maturity
Time
(Years)
Repayment Date
0.5-5.0
Oct-15-2012 to
Apr-15-2017
11.05
10.66
Straight /
Equal
10.25
Custom
10.70
Bullet
15.00
Loan Amount:
US$ 60 million
Grace Period
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
Loan Term
7.0
Apr-15-2019
2,100,574
2,529,431
3,000,000
2,500,000
(inc. Grace Period):
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
15 years
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
60,000,000
60,000,000
11
Total
60,000,000
60,000,000
60,000,000
Grace Period:
5 years
Repayment Methods
Annuity 'A'
Discount Rate :
10.00%
Average Loan Maturity
Time
Repayment Date
(Years)
Start
Apr-15-2012
Oct-15-2012 to
0.5-5.0
Apr-15-2017
5.5
Oct-15-2017
6.0
12
Apr-15-2018
Straight / Equal
14.52
0.10 % Premium
12.75
NIL
903,086
2,000,000
948,240
2,000,000
Sample Average Loan Maturity and
Maturity Premium Computation:
Loan amount:
Loan Term
US$ 60 million
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
(inc. Grace Period): 20 years
8.0
Apr-15-2020
1,152,592
2,000,000
8.5
Oct-15-2020
1,210,222
2,000,000
Grace Period:
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
Total
60,000,000
2,000,000
60,000,000
5 years
Average Loan Maturity (10% Annuity):
14.52 years
Maturity Premium:
0.10%
Average Loan Maturity (Equal
Repayments):
12.75 years
Maturity Premium:
NIL
Average Loan Maturity Table
(Annuity-type Repayment – 10% Annuity)
1
Loan Term
(inc. Grace period)
13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2
3
Grace Period
4
5
6
7
8
Average Loan Maturity
≤ 13 years
3.38
3.95
4.54
5.14
5.76
6.40
7.05
7.71
8.39
9.09
9.79
10.52
11.25
12.00
12.76
13.53
14.31
15.11
15.91
16.73
17.55
18.39
3.82
4.38
4.95
5.54
6.14
6.76
7.40
8.05
8.71
9.39
10.09
10.79
11.52
12.25
13.00
13.76
14.53
15.31
16.11
16.91
17.73
18.55
4.28
4.82
5.38
5.95
6.54
7.14
7.76
8.40
9.05
9.71
10.39
11.09
11.79
12.52
13.25
14.00
14.76
15.53
16.31
17.11
17.91
18.73
4.76
5.28
5.82
6.38
6.95
7.54
8.14
8.76
9.40
10.05
10.71
11.39
12.09
12.79
13.52
14.25
15.00
15.76
16.53
17.31
18.11
18.91
5.76
6.28
6.82
7.38
7.95
8.54
9.14
9.76
10.40
11.05
11.71
12.39
13.09
13.79
14.52
15.25
16.00
16.76
17.53
18.31
6.76
7.28
7.82
8.38
8.95
9.54
10.14
10.76
11.40
12.05
12.71
13.39
14.09
14.79
15.52
16.25
17.00
17.76
18.53
7.76
8.28
8.82
9.38
9.95
10.54
11.14
11.76
12.40
13.05
13.71
14.39
15.09
15.79
16.52
17.25
18.00
18.76
8.76
9.28
9.82
10.38
10.95
11.54
12.14
12.76
13.40
14.05
14.71
15.39
16.09
16.79
17.52
18.25
19.00
Maturity
Premium
NIL
> 13 years up to 16 years
0.10%
> 16 years up to 19 years
0.20%
Loan Term
(inc. Grace Period): 20 years
Grace Period:
5 years
Average Loan Maturity (10%
Annuity):
14.52 years
Average Loan Maturity Loan (Equal Repayments)
1
Loan Term
(inc. Grace period)
14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
2
3
Grace Period
4
5
6
7
8
Average Loan Maturity
3.25
3.75
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
3.75
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
≤ 13 years
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
17.75
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
17.75
18.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
17.75
18.25
18.75
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
17.75
18.25
18.75
Maturity
Premium
NIL
> 13 years up to 16 years
0.10%
> 16 years up to 19 years
0.20%
Loan Term
(inc. Grace Period): 20
years
Grace 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)
IBRDa
ADB (Revised)
Item
A. Interest Spread
1. Contractual spread
2. Maturity premium
3. Funding cost marginb
4. Net spread over LIBOR (I)
(A.1 + A.2 + A.3)
B. Commitment Charge
Spread equiv. – commit. chargec (II)
ADB
(Current)
≤ 13
years
40
40
(21)
19
> 13 years up > 16 years up up to
to 16 years
to 19 years 12 years
(21)
19
40
10
(21)
29
40
20
(21)
39
15
15
15
15
10
13
12
11
C. Front-End Fee
Spread equiv. of front-end feec (III)
D. Total Spread Equiv. over LIBOR
(I + II + III)
29
32
41
a
IBRD uses a variable spread loan charge based on average loan maturity.
b
Funding cost margin as of 1 July 2011
c
Based on disbursement profiles and repayment terms and could vary across MDBs.
15
Source: ADB Treasury Department.
50
12–15
years
15–18
years
(21)
29
50
10
(21)
39
50
20
(21)
49
25
25
25
5
4
4
34
43
53
50
Loan Charges (US$)
(Sovereign and Sovereign-guaranteed LBLs)
(for loan with formal negotiations completed on or after 1 April 2012)
Loan Charges
Basis
%
Adjusted every 6 months
6-month LIBOR
Fixed for the life of the loan
(Loan Negotiation Date)
0.40%
A. Net Lending Rate
Cost Base Rate
Effective Contractual Spread
Fixed 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)
Adjusted every 6 months
(ADB calculation)
-0.19%
(Applicable for 1 Jan – 30 Jun 2012)
B. Commitment Charge
Applied on full amount of
undisbursed balance
0.15%
C. Front-End Fee (FEF)
Eliminated
̶
Maturity Premium
Rebate/Surcharge on Funding
Cost Margin
16
LBL Net Lending Rate
(Sample pricing for a sovereign loan with a 15-year average loan maturity)
(for loan with formal negotiations completed on or after 1 April 2012)
USD
Cost base rate
Effective contractual spread
0.40%
Maturity premium
0.10%
Less: Rebate on funding cost margin
Net lending rate
17
6-month LIBOR
-0.19%
6-month LIBOR + 0.31%
Loan Processing
• 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 factfinding mission.
18
Summary
A. Maturity-based Pricing
• Applicable to loans with formal negotiations completed on or after 1
April 2012
Average Loan Maturity
Less than or equal to 13 years
Greater than 13 years up to 16 years
Greater than 16 years up to 19 years
Maturity Premium
NIL
0.10%
0.20%
• The average loan maturity is subject to a limit of 19 years.
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.
19
Thank you.
20