b loan january 2010
DESCRIPTION
Opportunities for the Majority B-Loan syndicationTRANSCRIPT
B-LOAN PROGRAM January 2010
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
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
IDB - WHO WE ARE
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
IDB PRIVATE SECTOR
SCF focuses on mid to large-cap transactions
Transaction sizes (IDB funds)Minimum US$10 million
Typical US$35 million or above
Maximum US$200 million
50% of projects cost (25-40% if greenfield)
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 with annual sales of US$100 million and above
STRUCTURED & CORPORATE FINANCE (SCF)
Focus on development effectiveness
Key service sectors: basic infrastructure and financial markets
Support green projects
Better serve the needs of smaller economies
Seek transactions that promote social inclusion
Products
Loans
GuaranteesPartial Credit Guarantees (covering all risks – up to 50% usually or up to 100% within Trade Finance Facilitation Program) or Political Risk Guarantees
Guarantee amount determined to optimize impact on rating (typically 30%-50% guarantee for improvement in rating of 3 to 4 notches - local scale)
IDB-reimbursement rights can be subordinated to other investors
STRUCTURED & CORPORATE FINANCE
Set up as an incubator within the private sector to drive innovation and best practices in applying market-based solutions to advance economic and social development at the base of the socioeconomic pyramid (BOP).
US$ 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.
OPPORTUNITIES FOR THE MAJORITY (OMJ)
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.
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.
OPPORTUNITIES FOR THE MAJORITY
A/B Loans
“A Loan” – IDB Loan TrancheUsually 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
IDB PRIVATE SECTOR FINANCIAL PRODUCTS
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.”
BorrowerBorrowerParticipantsParticipants
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
Loan Loan AgreementAgreement
A + B A + B LoansLoans
B LoanB Loan
Participation Participation AgreementAgreement
B-LOAN STRUCTURE
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
PREFERRED CREDITOR STATUS (PCS)
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
PCS: CAPITAL TREATMENT OF B LOANS UNDER BASEL II
Tenor profile in the region
B-LOAN ADVANTAGE
* 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
INVESTMENT GRADE
NON INVESTMENT GRADE
PROJECT FINANCE
UNCOVERED(Without MDB
umbrella)Up to 5 yrs. Up to 3 yrs. Generally
Unavailable *
B-LOAN 5 yrs. or greater 3 – 5 yrs. 10 – 14 yrs.
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’srights 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
B-LOANS VS. SYNDICATED LOANS
How do B-Loans differ from regular syndicated loans?
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)
BENEFITS TO B-LOAN PARTICIPANTS
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
BENEFITS TO B-LOAN BORROWER
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
BENEFITS OF B-LOANS TO IDB
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
PARTICIPANT’S VOTING RIGHTS
(Percentages reflect consent level required, based on total B Loan amount)
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
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
PARTICIPANT ELIGIBILITY
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 (unanimous), security (67% majority) and financial covenants (51% majority), subject to materiality
Has no contractual relationship with Borrower
Disposals are subject to IDB approval
Full voting rights on all credit and administrative matters
Lender has full legal recourse to Borrower
Disposals subject to Borrowers approval, but no limitations under default scenario
B-LOAN PROGRAM
Historical ResultsHistoricalHistorical ResultsResults
Number of B-Loans Closed: 58Number of BNumber of B--Loans Closed: 58Loans Closed: 58
Amount of B-Loan mobilized: $5.87 billionAmount of BAmount of B--Loan mobilized: $5.87 billionLoan mobilized: $5.87 billion
Number of historical participants: 124 institutionsNumber of historical participants: 124 institutionsNumber of historical participants: 124 institutions
PERFORMANCE HISTORY % write-off / A-loan outstanding (which has B Loan)
0.00%
0.47%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%
0.48%
2.16%
0.00%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
% Impaired Loan / A-loan outstanding (which has B Loan)
0% 0% 0% 0% 0%
6%
21%19% 18%
7%
0% 0%
12%
23%
0%5%
10%15%20%25%30%35%40%45%50%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Jozef HenriquezChief of Syndications UnitTel: (1) 202-623-1424Email: [email protected]
SYNDICATIONS TEAM
Brian BlakelySenior Syndications OfficerTel: (1) 202-623-2991Email: [email protected]
Kristin DaceySyndications OfficerTel: (1) 202-623-3349Email: [email protected]
Jaspreet BirkSyndications OfficerTel: (1) 202-623-2345Email: [email protected]
Eliana DuqueOffice AssistantTel: (1) 202-623-3731Email: [email protected]
Kentaro AoyamaSyndications OfficerTel: (1) 202-623-2811Email: [email protected]
2009
Noble Argentina
US$70,000,000 B Loan 5 years
Argentina
2009
Crecera Finance Company
US$77,500,000
B Loan 2 years
Regional
2009
Adeco Agropecuaria S.A. and Pilagá S.R.L.
US$ 49,000,0000 B Loan 5 years
Argentina
2008
BBVA Banco Continental
US$ 10,000,0000 B Loan
10 years
Peru
2008
Gerdau Açominas
US$ 150,000,0000 B Loan 7 years
Brazil
2008
Bicbanco
US$ 90,000,0000 B2 Loan 3 years
Brazil
2008
Instituto Costarricense de Electricidad
US$ 210,000,0000 B Loan
10 years
Costa Rica
2008
Peru LNG
US$ 400,000,0000 B Loan
Construction + 12 years
Peru
2008
SABESP
US$ 150,000,0000 B Loan
$100 M 12 yr / $50 M 10 yr
Brazil
2008
Linha 4 - Amarela
US$ 240,000,0000 B Loan
12 years
Brazil
2008
ATE III
US$ 110,000,0000 B Loan
12 years
Brazil
2007
Bicbanco
US$ 80,000,0000
B1 Loan 3 years
Brazil
2007
Charrua-Temuco Transmission Line
US$ 35,278,000 B Loan
20 years
Chile
2007
Delba Vessel
US$ 375,278,689 B Loan
10 years
Brazil
2007
Telefonica Moviles Colombia
US$ 475,000,0000 B Loan 5 years
Colombia
2007
Celtins
US$ 20,000,0000 B Loan 6 years
Brazil
2007
Embratel
US$ 220,000,000 B Loan 5 years
Brazil
2006
BBVA Banco Continental
US$ 105,000,000 B Loan 5 years
Peru
2006
ATE II
US$ 11,754,000 B Loan
12 years
Brazil
2006
Celpa Investment Program
US$ 60,000,0000
B Loan 6 years
Brazil
2006
Cemat Investment Program
US$ 29,500,0000 B Loan 6 years
Brazil
2006
Crecera Finance Company
US$ 90,000,0000
B Loan 4 years
Regional