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OMJ B-LOAN PROGRAM
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
$10 billion in approved lending and grants over the past 12 months
Backed by a AAA/Aaa rating by both Standard & Poors and Moody’s
IDB - WHO WE ARE
Responsible for leading the Bank’s operations without sovereign
guarantee
Partners with commercial banks, institutional investors, co-guarantors, and
other co-lenders to meet the growing of financial resources
Target clients:
Privately controlled entities in all sectors of the economy
Utilities and other infrastructure operators
Banks and other financial market institutions
State-owned companies without a sovereign guarantee
Corporates
IDB PRIVATE SECTOR
Set up as an incubator within the private sector to drive innovation and
best practices in applying market-based solutions to advance economic
and social development at the base of the socioeconomic pyramid (BOP).
US$ 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
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.”
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
IDB MOBILIZATION PRODUCT
BorrowerParticipants
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
Agreement
A + B
Loans
B Loan
Participation
Agreement
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’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
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 B-LOAN PROGRAM
Historical Results
Number of B-Loans Closed: 64
Amount of B-Loan mobilized: $6.38 billion
Number 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 Henriquez
Chief of Syndications Unit
Tel: (1) 202-623-1424
Email: [email protected]
SYNDICATIONS TEAM CONTACTS
Kristin Dacey
Syndications Officer
Tel: (1) 202-623-3349
Email: [email protected]
Jaspreet Birk
Associate Syndications Officer
Tel: (1) 202-623-2345
Email: [email protected]
Eliana Duque
Office Assistant
Tel: (1) 202-623-3731
Email: [email protected]
Kentaro Aoyama
Syndications Officer
Tel: (1) 202-623-2811
Email: [email protected]
