The IDB is the largest source of multilateral financing to Latin America and the Caribbean offering loans, grants and guarantees to sovereign and private sector clients.
For its sovereign borrowers, the IDB offers an extensive menu of market based, cost-effective flexible financing products. The Flexible Financing Facility (FFF) offers financial solutions to further borrowers’ risk management capabilities in projects, lending programs, and asset-liability management strategies.
Sovereign borrowers can choose from a menu of embedded options to tailor financial terms of Ordinary Capital (OC) loans. The FFF provides reliable and stable resources to IDB borrowers for their development goals at attractive pricing and with embedded as well as stand alone risk management features.
Loans under the FFF can by divided into tranches, allowing the creation of sub loans within a single loan. Each tranche can carry different financial structures, such as currency, repayment schedule, and interest rate basis.
Flexible Repayment Options
Borrowers have the option to select by loan signature or during the disbursem*nt period, loan repayment terms to better suit project cash flows and liquidity risk management considerations.
Standard FFF loans carry a semiannual straight line amortization schedule. Other repayment options include bullet repayment structures, extended grace periods, uneven amortization schedules, and shorter repayment periods subject to: (i) the cumulative WAL of all tranches cannot exceed the loan’s original WAL, and (ii) the loan’s original final maturity date, which cannot be exceeded. More information here.
Currency Conversion Options
Through built-in options in FFF loans, borrowers have the ability to manage currency exposures by transforming US dollar or Local Currency (LC) denominated loans into other major currencies or other regional LCs. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
LC financing enhances the ability to manage currency exposures and better match project cash flows of sovereigns and sub national entities.
Interest Rate Conversion Options
Through built-in options in FFF loans, borrowers have the ability to change the interest rate basis or manage interest rate volatility.
FFF loans carry a variable interest rate based on USD SOFR daily overnight compounded rate plus the IDB lending spread. Borrowers can change the interest rate basis of the loan—from SOFR-based to fixed or vice versa—at any time during the life of the loan. The interest rate basis can be converted but the IDB lending spread remains variable.
In addition to fixing or unfixing the interest rate, borrowers can choose to limit the interest rate volatility by buying an interest rate cap or collar. Maturities for interest rate conversions, caps or collars depend on market availability.
Commodity Conversions Options
Through built-in options in FFF loans, borrowers have the ability to manage exposures to commodity prices. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
Conversions are embedded in FFF loan agreements (i.e., no ISDA required), are structured on a case-by-case basis, are settled in cash only, and are subject to market availability, and operational and risk management considerations. There is no limit to the number of commodity conversions that can be executed during the life of a FFF loan. Currently, IDB can offer oil hedges linked to FFF loans; other commodities will be assessed based on borrower demand.
Stand Alone Hedges to Manage IDB Debt
Using standard market techniques, borrowers have the option to manage interest rate, currency and other types of exposures through direct hedges with the IDB throughout the life of IDB loans. Hedges are offered against outstanding loan balances (OLBs) on a loan or loan portfolio basis. To access hedging products, an ISDA Master Derivatives Agreement (MDA) must be signed with the Bank.
More information
Principal Payment Option (PPO) - Climate Resilient Debt Clause
Through the Principal Payment Option (PPO) borrowers have a one-time option to defer principal repayments for two years following the occurrence of an eligible natural disaster and repay those amounts in future amortization installments. It provides vital financial relief in that time of distress. The deferred payments allow the country to cover public expenses at its discretion.
Catastrophe Protection Conversion Options
The occurrence of a catastrophe can significantly impact the fiscal accounts of sovereign borrowers. This situation presents significant challenges to sustainable development. Through the built-in Catastrophe Protection Conversions in the FFF, borrowers have the ability to manage exposure to catastrophe risk.
The IDB’s Catastrophe Protection Conversions in the FFF provide Borrowers with a cost-effective streamlined way to secure catastrophe risk transfer instruments. The IDB offers Catastrophe Protection Conversions in FFF loans for a single or for multiple perils. Sovereign nations can tailor their protection to cover a layer of losses. If a pre-defined Catastrophe event occurs the country receives a corresponding cash payout from the IDB. In exchange for this protection, the country pays the costs of the market instrument issued by the IDB plus an applicable fee.
Contingent Credit Facility (CCF) for Climate and Disaster Risk
The objective of this Contingent Credit Facility is to provide member countries with liquid resources to cover urgent financing needs that arise immediately after a natural disaster of unexpected, sudden, and unusual proportions, until other sources of funding can be accessed.
Flexible Repayment Options
Borrowers have the option to select by loan signature or during the disbursem*nt period, loan repayment terms to better suit project cash flows and liquidity risk management considerations.
Standard FFF loans carry a semiannual straight line amortization schedule. Other repayment options include bullet repayment structures, extended grace periods, uneven amortization schedules, and shorter repayment periods subject to: (i) the cumulative WAL of all tranches cannot exceed the loan’s original WAL, and (ii) the loan’s original final maturity date, which cannot be exceeded. More information here.
Currency Conversion Options
Through built-in options in FFF loans, borrowers have the ability to manage currency exposures by transforming US dollar or Local Currency (LC) denominated loans into other major currencies or other regional LCs. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
LC financing enhances the ability to manage currency exposures and better match project cash flows of sovereigns and sub national entities.
Interest Rate Conversion Options
Through built-in options in FFF loans, borrowers have the ability to change the interest rate basis or manage interest rate volatility.
FFF loans carry a variable interest rate based on USD SOFR daily overnight compounded rate plus the IDB lending spread. Borrowers can change the interest rate basis of the loan—from SOFR-based to fixed or vice versa—at any time during the life of the loan. The interest rate basis can be converted but the IDB lending spread remains variable.
In addition to fixing or unfixing the interest rate, borrowers can choose to limit the interest rate volatility by buying an interest rate cap or collar. Maturities for interest rate conversions, caps or collars depend on market availability.
Commodity Conversions Options
Through built-in options in FFF loans, borrowers have the ability to manage exposures to commodity prices. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
Conversions are embedded in FFF loan agreements (i.e., no ISDA required), are structured on a case-by-case basis, are settled in cash only, and are subject to market availability, and operational and risk management considerations. There is no limit to the number of commodity conversions that can be executed during the life of a FFF loan. Currently, IDB can offer oil hedges linked to FFF loans; other commodities will be assessed based on borrower demand.
Stand Alone Hedges to Manage IDB Debt
Using standard market techniques, borrowers have the option to manage interest rate, currency and other types of exposures through direct hedges with the IDB throughout the life of IDB loans. Hedges are offered against outstanding loan balances (OLBs) on a loan or loan portfolio basis. To access hedging products, an ISDA Master Derivatives Agreement (MDA) must be signed with the Bank.
More information
Principal Payment Option (PPO) - Climate Resilient Debt Clause
Through the Principal Payment Option (PPO) borrowers have a one-time option to defer principal repayments for two years following the occurrence of an eligible natural disaster and repay those amounts in future amortization installments. It provides vital financial relief in that time of distress. The deferred payments allow the country to cover public expenses at its discretion.
Catastrophe Protection Conversion Options
The occurrence of a catastrophe can significantly impact the fiscal accounts of sovereign borrowers. This situation presents significant challenges to sustainable development. Through the built-in Catastrophe Protection Conversions in the FFF, borrowers have the ability to manage exposure to catastrophe risk.
The IDB’s Catastrophe Protection Conversions in the FFF provide Borrowers with a cost-effective streamlined way to secure catastrophe risk transfer instruments. The IDB offers Catastrophe Protection Conversions in FFF loans for a single or for multiple perils. Sovereign nations can tailor their protection to cover a layer of losses. If a pre-defined Catastrophe event occurs the country receives a corresponding cash payout from the IDB. In exchange for this protection, the country pays the costs of the market instrument issued by the IDB plus an applicable fee.
Contingent Credit Facility (CCF) for Climate and Disaster Risk
The objective of this Contingent Credit Facility is to provide member countries with liquid resources to cover urgent financing needs that arise immediately after a natural disaster of unexpected, sudden, and unusual proportions, until other sources of funding can be accessed.
Are you interested in obtaining information about debt and risk management tools linked to Sovereign Guaranteed loans?
Are you interested in obtaining information about the financial solution for the private sector?
