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

Product Name Loan Syndication
Link to Product Website
Provider Name AfDB (African Development Bank)
Product Definition As part of its mission to mobilize capital for productive use in viable projects in Africa, the Bank offers two loan syndication structures the more common parallel co-financing loan structure and the A and B loan structure.


A syndicated loan is typically a large loan in which a group of financial institutions (the syndicate) work togetherto provide funds for a borrower. Usually, one or more lead banks (the arranger/s) take a percentage ofthe loan and syndicate the rest to other financial institutions. To ensure that the borrower does not have to deal with all syndicate members individually, an agent acts as a focal point for and on behalf of all syndicate
members.

The more common parallel co-financing loan structure includes an Arranger and an Agent; whereby the arranger originates, structures and syndicates the transaction, and their duties include the preparation of the information memorandum and all the necessary steps to syndicate the loan in return for a fee. The agent administers the loan in return for a fee. The duties and responsibilities of the agent are described in an agency agreement.

A and B Loan Structure:

Under this structure, the Bank acts as the ‘lender-of-record’ of the ‘loan-on-record’, keeps part of the loan (the A loan) and sells participations to B loan participants who take full exposure to the underlying project credit risk in the proportion of their participations. Thus, the A loan is the amount of the loan that the Bank has agreed to keep for its own credit while the B loan is the portion of the loan that is syndicated to commercial financial institutions. Under this structure, the B?loan participants benefit from the AfDB’s Preferred Creditor Status (PCS) as a Multilateral Development Institution.

In introducing a B loan programme, the Bank’s prime objective is to attract private capital to the continent with its involvement in the transaction as lender-of-record and co- financier. The leverage of its’ special status allows the Bank to assist eligible borrowers in obtaining financing from foreign private sector financial institutions interested in lending to projectsin Africa, which shall result in an increase of foreign direct investment (FDI).

Country, Project and Sector Eligibility:

The Bank may, through B loan syndication, fund any project orsector eligible for an NSGL in a regional member country, provided that the country signs a comfort letter explicitly recognizing the preferred creditor status of the Bank.

Viable, strong and commercially operated financial institutions are eligible participants. However, financial institutions that are incorporated or have their head office in the country where the borrower is incorporated or carrying out the project are excluded. Export credit agencies or governmental, quasi-governmental or multilateral agencies, the project’s sponsors and off-takers are also not eligible to participate in the B-loan.

An eligible participant must have a minimum investment?grade rating from a major and reputable rating agency. In exceptional cases and subject to suitable justification, the Bank may accept a lower rated or unrated participant.

Pricing:

Loans syndicated by the AfDB shall be priced according to prevailing international loan market terms and practices, in line with the assessment of the credit risk assumed by participants in the syndication. Hence the credit exposure supported by participants could be priced differently from the A-loan.

Product Type Co-financing
Defined Risks Covered n.a.
Eligible Form of Investments Bank Loans
Non-Bank Loans
Shareholder 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 PRIVATE: All
More on Eligible Applicants
Eligible Sector No Specific Sector
Maximum Tenor 10+ to 15 years
Max. Absolute Amount (USD) Over 350+ MM
Max. % of Project Costs Covered Max./under 25%
Max. % of Export Content Covered Max./under 50%
Fees Market-based
Commitment fee: 0?1% for MIC countries, 0.5%?1% for others.

Front end fee: 1% of the loan amount.

Appraisal fee: The Bank may charge an appraisal fee on a case by case basis.

Arrangement and syndication fee: The arrangement fee, also known as praecipium, is
levied to pay for the work and expenses of the arranger. This flat fee, applicable to the B?
loan amount, shall be paid by the borrower to the AfDB or for onward transfer to another
arranger. The syndication fee shall be paid to the AfDB on or before the date of signature
of the loan agreement.

Loan administration fee: This is a flat fee,to be levied for the work ofthe agent, it shall be
paid by the borrower to the AfDB or for onward transfer to another agent.

Underwriting fee: Where the AfDB underwrites a portion of the B loan, the borrower shall
pay an underwriting fee to the AfDB.

Other fees: Legal and other expenses incurred by the AfDB during the processing of an A 
and B loan syndication, other than the AfDB’s normal operational expenses, shall be
charged to the borrower.
More on Fees

Other Conditions Sovereign Counterguarantee: No
Anti-Corruption and Governance Standards: No
Environmental standards: No
Social standards (incl. Human Rights Standards; Labor Rights Standards): No
Others:
Source(s) n.a.
For more information, contact
African Development Bank
Email: afdb@afdb.org
Phone: (+216) 71 10 39 00
Attachments n.a.
Additional Links n.a.
Deals n.a.

Provider Name AfDB (African Development Bank)
Institution Type PUBLIC: Multilateral Development Bank
Ownership n.a.
Head Office Statutory Headquarters Rue Joseph Anoma, 01 BP 1387 Abidjan 01 Côte d'Ivoire
Provider Home Country Cote dIvoire
Rating n.a.
Main Risk Mitigation Products Partial Credit Guarantee (AfDB)
Policy-Based Guarantee (AfDB)
Sub-sovereign Finance (AfDB)
Attachments n.a.
Additional Links www.afdb.org/en/projects-and-operations/
www.afdb.org/en/topics-and-sectors/
www.afdb.org/en/news-and-events/
www.afdb.org/en/documents/
www.afdb.org/en/knowledge/
Entered On: 12/18/2007 at 01:18 PM
Updated On: 05/21/2013 at 02:44 PM