RISK MITIGATION: What are Updates & Proposals on Risk Mitigation Products?

Product Name Municipal Finance Facility
Link to Product Website
Provider Name EBRD (European Bank for Reconstruction and Development)
Product Definition The Municipal Finance Facility is an initiative of the EBRD and the European Commission to develop and stimulate commercial bank lending to small and medium-sized municipalities and their utility companies (SMMs) in EU Accession countries joining the EU in 2004. This includes Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia with Bulgaria and Romania to follow.


The facility combines EBRD finance in the form of long-term loans and/or risk sharing with EU Phare grant support in the form of a maturity enhancement fee and technical cooperation for partner banks and/or SMMs.

Objectives:

- Stimulate willingness of banks to lend to SMMs.
- Enhance abilities of banks to assess risks of SMMs and to manage their loans in the sector.
- Provide SMMs with access to medium and long-term financing.
- Assist SMMs to prepare and implement feasible and financially sound infrastructure investments suitable for credit financing.

Facilities

Loans
The EBRD will provide up to €75 million in long-term lines of credit from 10 - 15 years to partner banks for on-lending to SMMs in EUR or local currency. Loan amounts are €10 - 20 million per bank. Pricing reflects the credit risk of the partner bank.

Partner banks make loans up to €5 million with a maturity of 5 - 15 years available to SMMs for investment in infrastructure.

Risk sharing
The EBRD will provide up to €25 million for risk sharing on up to 35% of the partner bank's risk on a portfolio of loans to SMMs. The EBRD's support acts like a guarantee, and the EBRD will provide funding only in the event that a municipal loan defaults. The EBRD receives a pro rata share of the margin for the portion of the loan made by the partner bank. This reflects the risk the EBRD is taking. The EBRD pays an agency fee to the partner bank to off-set loan processing costs.

Technical cooperation

For banks
EU funds provide short-term technical cooperation to banks to upgrade their capacity to appraise municipal infrastructure projects, assess risks and manage portfolios.

The EBRD makes municipal finance experts available to partner banks if requested to help establish specialised municipal finance units and to assist in developing lending practices of partner banks to the sector. This can include training of loan officers and credit personnel and preparing/adapting lending manuals.

For municipalities
EU funds provide support for project preparation, loan application and project implementation by SMMs. In addition, technical cooperation may include creditworthiness support, support for tariff changes or support to revenue enhancement/cost control in utility companies. Support for project preparation is only available upon confirmation by the partner bank to the EBRD that it has initiated due diligence on that municipality and is considering financing a project. Implementation support is only provided in relation to local loans financed.

Selection criteria

For banks:

- Creditworthiness.
- Demonstrated commitment to extend long-term financing to SMMs.
- Commitment to promote the facility to SMMs.
- Acceptable standards of procedure for municipal credit appraisal.
- Willingness to co-operate with the EBRD regarding technical cooperation support.
- Willingness to provide visibility for the EU through means such as press conferences and featuring the EU logo in marketing materials and public events.

For municipalities
Municipalities should serve a population of under 100,000 people, or for Bulgaria and Romania, under 150,000 people. They should have sound financial management and a good cash flow. Investments can be in infrastructure sectors such as local transport, district heating, water supply, sewerage, solid waste management, public roads and parking.

Product Type Sub-sovereign Finance
Defined Risks Covered n.a.
Eligible Form of Investments Bonds
Bank Loans
Eligible Currency of Underlying Investment Covered by this Product Both local and foreign currency
Eligible Countries & Regions n.a.
More on Eligible Countries
Eligible Applicants PUBLIC: Sovereigns
PUBLIC: Subsovereign Entities
PRIVATE: Host Country Banks
Eligible Sector No Specific Sector
Maximum Tenor 10+ to 15 years
Max. Absolute Amount (USD) 0 to 50 MM
Max. % of Project Costs Covered 25+% to 50%
Max. % of Export Content Covered Over 85+%
Fees Fixed
Maturity enhancement fee

To encourage longer-term lending, the EU provides a maturity enhancement fee to partner banks. The fee is paid on a good faith basis at a rate depending on the tenor of the loan. In the event of loan cancellation, prepayment or default within 5 years, partner banks are required to repay the fee in full.

Loan Tenor: 6-7 Years, Maturity Enhancement Fee: Up to 100 bps
Loan Tenor: 8-9 Years, Maturity Enhancement Fee: Up to 200 bps
Loan Tenor: 10-11 Years, Maturity Enhancement Fee: Up to 300 bps
Loan Tenor: 12-13 Years, Maturity Enhancement Fee: Up to 400 bps
Loan Tenor: 14-15 Years, Maturity Enhancement Fee: Up to 500 bps
More on Fees

Other Conditions Sovereign Counterguarantee: No
Anti-Corruption and Governance Standards: Yes link
Environmental standards: Yes
Social standards (incl. Human Rights Standards; Labor Rights Standards): Yes
Others: Ethnic Minority Rights
More on Other Standards
Source(s) http://www.ebrd.com/pages/about/contacts.shtml
For more information, contact n.a.
Attachments n.a.
Additional Links n.a.
Deals n.a.

Provider Name EBRD (European Bank for Reconstruction and Development)
Institution Type PUBLIC: Multilateral Development Bank
Ownership Owned by 61 Member Countries and two Intergovernmental Institutions
Head Office One Exchange Square, London EC2A 2JN, United Kingdom
Provider Home Country United Kingdom
Rating n.a.
Main Risk Mitigation Products n.a.
Attachments n.a.
Additional Links www.ebrd.com/pages/project.shtml
www.ebrd.com/pages/research.shtml
www.ebrd.com/pages/news.shtml
Entered On: 07/04/2007 at 04:06 PM
Updated On: 05/08/2013 at 10:16 AM