Maturity Based PricingMaturity‐Based Pricing Sovereign and Sovereign-

Guaranteed Borrowers

Key Concepts and Examples

Calculating Average Loan Maturity 

Key Concepts and Examples

g g yand Associated Maturity Premium

This document provides general information on maturity-based pricing and related concepts, such as Average Loan Maturity

IntroductionIntroduction

ADB’s Board of Directors approved the introduction oft it b d i i f LIBOR b d l (LBL) tmaturity-based pricing for LIBOR-based loans (LBL) to

sovereign borrowers or with sovereign guarantees, andlocal currency loans with sovereign guarantees on 14December 2011.

A maturity premium will be applicable to loans for whichf l l ti ti l t d ft 1 A ilformal loan negotiations are completed on or after 1 April2012.

Average loan maturity is an important element underg y pmaturity-based pricing.

2

Maturity Premium(S i d i t d b )(Sovereign and sovereign-guaranteed borrowers)

• The average loan maturity will determine how much maturitypremium is applied on the loan

Average Loan Maturity Maturity Premiuma

premium is applied on the loan.

Less than or equal to 13 years NilGreater than 13 years and up to 16 years 0.10% per annum

Greater than 16 years and up to 19 years 0 20% per annumGreater than 16 years and up to 19 years 0.20% per annum

• Maturity premium is applicable to loans for which formal loannegotiations are completed on or after 1 April 2012.

• The average loan maturity is subject to a limit of 19 years.a To be applied for the entire life of the loan

3

Average Loan MaturityAverage Loan Maturity

Average loan maturity is the weighted average time tol It id b th t d t drepay a loan. It considers, both, repayment dates and

amounts to provide a better estimation of how quickly a loanis repaid.

Repayment dates depend on the first principalpayment date, grace period and loan term.

Repayment amounts depend on repayment methodselected.

Choice of key repayment terms such as Grace Period Choice of key repayment terms, such as Grace Period,Loan Term and Repayment Method are importantconsiderations, given their effect on Average Loan Maturity.

4

Average Loan Maturity - CalculationAverage Loan Maturity Calculation

Average loan maturity is calculated as the average of the Average loan maturity is calculated as the average of thenumber of years until each principal repayment amount isdue, weighted by the principal repayment amount.

Average Loan Maturity = Sum of Weighted RepaymentsSum of Total Repayments

5

Average Loan MaturityAverage Loan MaturityExamples

Disclaimer : Numbers are for illustrative purposes only

Example 1: Average Loan Maturity CalculationStraight Line Repayment MethodStraight-Line Repayment Method

Loan Amount: US$ 60 million Straight Line (5‐Year Maturity) Repayment Method

Loan Amount: US$ 60 millionLoan Term (including GracePeriod): 5 yearsGrace Period:* 2 yearsR t M th d St i ht Li

Years Principal 

Repayments Weighted 

Repayments (A) (B) C = (A x B)

Grace Period0 50 Repayment Method: Straight-Line

* Grace Period – the period prior to the first principal payment date wherein no principal repayments are made.

0.501.001.502.00Repayment PeriodRepayment Period2.50 10.00                        25.00                       3.00 10.00                        30.00                       3.50 10.00                        35.00                       4.00 10.00                        40.00                     4.50 10.00                        45.00                       5.00 10.00                        50.00                       

Sum 60.00                        225.00                    

7Average Loan Maturity3.75 years

= Sum of C / Sum of B= 225.00 / 60.00

Example 2: Average Loan Maturity CalculationAnnuity-type Repayment Methody yp p y

Discount Rate : Time (Years) Principal Weighted Principal Weighted

Repayment Repayment Repayment Repayment

Repayment MethodAnnuity '2'Annuity '1'10.00%5.00%

Loan Amount:US$ 60 million

Repayment Repayment Repayment Repayment(A) (B1) C1=(AxB1) (B2) C2=(AxB2)

 0.5‐5.0 

5.5  2,348,828  12,918,552  1,814,555  9,980,054 6.0  2,407,548  14,445,291  1,905,283  11,431,698 6.5  2,467,737  16,040,291  2,000,547  13,003,556 

Grace Period

Loan Term (including Grace Period):15 years

Grace Period:7.0  2,529,431  17,706,014  2,100,574  14,704,021 7.5  2,592,666  19,444,997  2,205,603  16,542,024 8.0  2,657,483  21,259,864  2,315,883  18,527,067 8.5  2,723,920  23,153,320  2,431,678  20,669,259 9.0  2,792,018  25,128,162  2,553,261  22,979,353 9.5  2,861,819  27,187,276  2,680,925  25,468,783 

Grace Period:5 years

Repayment Method:Annuity with different10.0  2,933,364  29,333,640  2,814,971  28,149,707 

10.5  3,006,698  31,570,330  2,955,719  31,035,052 11.0  3,081,866  33,900,521  3,103,505  34,138,558 11.5  3,158,912  36,327,490  3,258,680  37,474,826 12.0  3,237,885  38,854,620  3,421,615  41,059,374 12.5 3,318,832 41,485,401 3,592,695 44,908,691

Annuity, with different discount rates

12.5  3,318,832  41,485,401  3,592,695  44,908,691 13.0  3,401,803  44,223,438  3,772,330  49,040,290 13.5  3,486,848  47,072,447  3,960,947  53,472,778 14.0  3,574,019  50,036,268  4,158,994  58,225,914 14.5  3,663,370  53,118,860  4,366,944  63,320,681 15.0  3,754,954  56,324,308  4,585,291  68,779,360 Sum 60 000 000 639 531 090 60 000 000 662 911 046

The lower the discount rate, the shorter the Average Loan Maturity.

8

 Sum  60,000,000  639,531,090  60,000,000  662,911,046 =Sum of C1 / Sum of B1

=Sum of C2 / Sum of B2

=639,531,090/60,000,000

=662,911,046/60,000,000

11.05 years10.66 years

Example 3: Average Loan Maturity CalculationCustom-Tailored Repayment

Time (Years) Principal Weighted Principal WeightedRepayment Repayment Repayment Repayment

 Repayment Method 

Higher Repayments at the Start Higher Repayments at the EndLoan Amount: US$ 60 million

Loan Term (including Grace Period): 15 years

p y

(A) (B1) C1=(AxB1) (B2) C2=(AxB2) 0.5‐5.0 5.5  3,500,000  19,250,000  2,000,000  11,000,000 6.0  3,500,000  21,000,000  2,000,000  12,000,000 6.5  3,500,000  22,750,000  2,500,000  16,250,000 7.0  3,500,000  24,500,000  2,500,000  17,500,000 

Grace Period

Period): 15 years

Grace Period: 5 years

Repayment Method:, , , , , , , ,

7.5  3,500,000  26,250,000  2,500,000  18,750,000 8.0  3,500,000  28,000,000  2,500,000  20,000,000 8.5  3,500,000  29,750,000  3,000,000  25,500,000 9.0  3,500,000  31,500,000  3,000,000  27,000,000 9.5  3,000,000  28,500,000  3,000,000  28,500,000 10 0 3 000 000 30 000 000 3 000 000 30 000 000

Custom-tailored

• The Average Loan Maturity depends on timing and amount of repayment If higher repayments10.0  3,000,000  30,000,000  3,000,000  30,000,000 

10.5  3,000,000  31,500,000  3,000,000  31,500,000 11.0  3,000,000  33,000,000  3,000,000  33,000,000 11.5  3,000,000  34,500,000  3,500,000  40,250,000 12.0  3,000,000  36,000,000  3,500,000  42,000,000 12.5  2,500,000  31,250,000  3,500,000  43,750,000 

repayment. If higher repayments are made at the start, the Average loan maturity will be shorter.• For custom‐tailored repayment method, the amortization 

13.0  2,500,000  32,500,000  3,500,000  45,500,000 13.5  2,500,000  33,750,000  3,500,000  47,250,000 14.0  2,500,000  35,000,000  3,500,000  49,000,000 14.5  2,000,000  29,000,000  3,500,000  50,750,000 15.0  2,000,000  30,000,000  3,500,000  52,500,000  Sum  60,000,000  588,000,000  60,000,000  642,000,000 

schedule should meet the cash flows of the project.

9

=Sum of C1 / Sum of B1

=Sum of C2 / Sum of B2

=588,000,000/60,000,000

=642,000,000/60,000,000

9.80 years 10.70 years

Example 4: Average Loan Maturity and Maturity Premium Computation

Annuity 'A'Discount Rate : 10.00%

14.52 12.75

Time (Years)

Repayment Date 0.10 % Premium NIL

Start Apr-15-2012

Straight-line

Average Loan Maturity

Repayment Methods

The choice of repayment method has an impact on how much maturity premium is applied.

Loan amount: US$ 60 millionLoan Term

Start Apr 15 2012

0.5-5.0 Oct-15-2012 to Apr-15-2017

5.5 Oct-15-2017 903,086 2,000,000 6.0 Apr-15-2018 948,240 2,000,000 6.5 Oct-15-2018 995,652 2,000,000 7.0 Apr-15-2019 1,045,435 2,000,000

7.5 Oct-15-2019 1,097,707 2,000,000

(incl. Grace Period):20 yearsGrace Period: 5 years

Average Loan Maturity (10% Annuity):

7.5 Oct 15 2019 1,097,707 2,000,000 8.0 Apr-15-2020 1,152,592 2,000,000 8.5 Oct-15-2020 1,210,222 2,000,000 9.0 Apr-15-2021 1,270,733 2,000,000 9.5 Oct-15-2021 1,334,269 2,000,000 10.0 Apr-15-2022 1,400,983 2,000,000 10.5 Oct-15-2022 1,471,032 2,000,000

11 0 Apr 15 2023 1 544 584 2 000 000 Average Loan Maturity (10% Annuity):14.52 yearsMaturity Premium: 0.10% per annum

A L M t it (St i ht li )

11.0 Apr-15-2023 1,544,584 2,000,000 11.5 Oct-15-2023 1,621,813 2,000,000 12.0 Apr-15-2024 1,702,904 2,000,000 12.5 Oct-15-2024 1,788,049 2,000,000 13.0 Apr-15-2025 1,877,451 2,000,000 13.5 Oct-15-2025 1,971,324 2,000,000 14.0 Apr-15-2026 2,069,890 2,000,000

Average Loan Maturity (Straight-line):12.75 yearsMaturity Premium: Nil

14.5 Oct-15-2026 2,173,384 2,000,000 15.0 Apr-15-2027 2,282,054 2,000,000 15.5 Oct-15-2027 2,396,156 2,000,000 16.0 Apr-15-2028 2,515,964 2,000,000 16.5 Oct-15-2028 2,641,762 2,000,000 17.0 Apr-15-2029 2,773,850 2,000,000 17.5 Oct-15-2029 2,912,543 2,000,000

10

18.0 Apr-15-2030 3,058,170 2,000,000 18.5 Oct-15-2030 3,211,079 2,000,000 19.0 Apr-15-2031 3,371,633 2,000,000 19.5 Oct-15-2031 3,540,214 2,000,000 20.0 Apr-15-2032 3,717,225 2,000,000

Total 60,000,000 60,000,000

Average Loan MaturityAverage Loan MaturityTools for Calculation

* Table for Quick Reference* Average Loan Maturity Calculator

Average Loan Maturity Table for Quick Reference(Straight-Line Repayment)

1 2 3 4 5 6 7 81234

Grace Period

Average Loan Maturity*

Maturity Premium per annum

≤ 13 years NIL45 3.25          3.75          4.25          4.75         6 3.75          4.25          4.75          5.25          5.75         7 4.25          4.75          5.25          5.75          6.25          6.75         8 4.75          5.25          5.75          6.25          6.75          7.25          7.75         9 5.25          5.75          6.25          6.75          7.25          7.75          8.25          8.75         

> 13 years and up to 16 years 0.10%

> 16 years and up to 19 years 0.20%

*subject to a limit of 19 years10 5.75          6.25          6.75        7.25        7.75        8.25        8.75         9.25        11 6.25          6.75          7.25          7.75          8.25          8.75          9.25          9.75         12 6.75          7.25          7.75          8.25          8.75          9.25          9.75          10.25      13 7.25          7.75          8.25          8.75          9.25          9.75          10.25       10.75      14 7.75          8.25          8.75          9.25          9.75          10.25       10.75       11.25      15 8 25 8 75 9 25 9 75 10 25 10 75 11 25 11 75Loan Term

For the same grace period, the longer the 15 8.25          8.75          9.25        9.75        10.25     10.75     11.25     11.75     

16 8.75          9.25          9.75          10.25       10.75       11.25       11.75       12.25      17 9.25          9.75          10.25       10.75       11.25       11.75       12.25       12.75      18 9.75          10.25       10.75       11.25       11.75       12.25       12.75       13.25      19 10.25       10.75       11.25       11.75       12.25       12.75       13.25       13.75      20 10.75       11.25       11.75       12.25       12.75       13.25       13.75       14.25      

Loan Term(inc. Grace period)

p , gloan term, the longer the Average Loan Maturity.

21 11.25       11.75       12.25       12.75       13.25       13.75       14.25       14.75      22 11.75       12.25       12.75       13.25       13.75       14.25       14.75       15.25      23 12.25       12.75       13.25       13.75       14.25       14.75       15.25       15.75      24 12.75       13.25       13.75       14.25       14.75       15.25       15.75       16.25      25 13.25       13.75       14.25       14.75       15.25       15.75       16.25       16.75      26 13 75 14 25 14 75 15 25 15 75 16 25 16 75 17 25

12

26 13.75       14.25       14.75     15.25     15.75     16.25     16.75     17.25     27 14.25       14.75       15.25       15.75       16.25       16.75       17.25       17.75      28 14.75       15.25       15.75       16.25       16.75       17.25       17.75       18.25      29 15.25       15.75       16.25       16.75       17.25       17.75       18.25       18.75      30 15.75       16.25       16.75       17.25       17.75       18.25       18.75      

Average Loan Maturity Table for Quick Reference(Annuity-type Repayment – 10% Annuity)( y yp p y y)

1 2 3 4 5 6 7 812

Grace Period

Average Loan Maturity*

Maturity Premium per annum

≤ 13 NIL345 3.38        3.82        4.28        4.76       6 3.95        4.38        4.82        5.28        5.76       7 4.54        4.95        5.38        5.82        6.28        6.76       

≤ 13 years NIL

> 13 years and up to 16 years 0.10%

> 16 years and up to 19 years 0.20%

* bj t t li it f 198 5.14        5.54        5.95        6.38        6.82        7.28        7.76       9 5.76        6.14        6.54        6.95        7.38        7.82        8.28        8.76       10 6.40        6.76        7.14        7.54        7.95        8.38        8.82        9.28       11 7.05        7.40        7.76        8.14        8.54        8.95        9.38        9.82       12 7.71        8.05        8.40        8.76        9.14        9.54        9.95        10.38     

*subject to a limit of 19 years

For the same loan term,13 8.39        8.71        9.05      9.40      9.76      10.14    10.54    10.95    14 9.09        9.39        9.71        10.05      10.40      10.76      11.14      11.54     15 9.79        10.09      10.39      10.71      11.05      11.40      11.76      12.14     16 10.52      10.79      11.09      11.39      11.71      12.05      12.40      12.76     17 11.25      11.52      11.79      12.09      12.39      12.71      13.05      13.40     

Loan Term(inc. Grace period)

For the same loan term, the shorter the grace period, the shorter the Average Loan Maturity.

18 12.00      12.25      12.52    12.79    13.09    13.39    13.71    14.05    19 12.76      13.00      13.25      13.52      13.79      14.09      14.39      14.71     20 13.53      13.76      14.00      14.25      14.52      14.79      15.09      15.39     21 14.31      14.53      14.76      15.00      15.25      15.52      15.79      16.09     22 15.11      15.31      15.53      15.76      16.00      16.25      16.52      16.79     23 15 91 16 11 16 31 16 53 16 76 17 00 17 25 17 52

13

23 15.91      16.11      16.31    16.53    16.76    17.00    17.25    17.52    24 16.73      16.91      17.11      17.31      17.53      17.76      18.00      18.25     25 17.55      17.73      17.91      18.11      18.31      18.53      18.76      19.00     26 18.39      18.55      18.73      18.91     

Average Loan Maturity CalculatorAverage Loan Maturity Calculator

Borrowers can access, both, a web-based and an excel-b d l t it l l t t th ADB b itbased average loan maturity calculator at the ADB website.

Loan Accounting and Servicing (LAS) Website:http://lfis.adb.orghttp://lfis.adb.org

Borrowers to email at LfisGfisLas@adb.org to obtain “UserName” and “Password” for access to calculators.

The calculators allow borrowers to make informed decisionsin structuring the loan profile by simulating, and considering,different options of repayment termsdifferent options of repayment terms.

14

Loan Accounting and Servicing WebsiteLoan Accounting and Servicing Website

15

Average Loan Maturity Calculator W b B d- Web-Based

16

Average Loan Maturity Calculator E l B d- Excel-Based

17

Summary

• Applicable to loans for which formal negotiations are completed on orafter 1 April 2012

A. Maturity-based Pricing

p

Average Loan Maturity Maturity Premium

Less than or equal to 13 years NIL

Th l i i bj t t li it f 19

q yGreater than 13 years and up to 16 years 0.10% p.aGreater than 16 years and up to 19 years 0.20% p.a

• The average loan maturity is subject to a limit of 19 years.

B. Choice of Repayment Terms is an important consideration givenits effect on Average Loan Maturity

C. Maturity premium applicability should be discussed in the earlystage of loan processing and reflected in the memorandum ofunderstanding or aide-memoire.

18

g