PRODUCT NOTEIBRD Flexible Loan with Variable Spread: Major
Terms and Conditions
Highlights
The IBRD Flexible Loan offers:• Long maturities• Market-based interest rates reflecting IBRD’sAAA credit rating• Flexibility to tailor repayment terms• Embedded tools to manage currency orinterest rate risk over the life of the loan•

Embedded tools for disaster protection
for small states

Loans from the International Bank for Reconstruction andDevelopment (IBRD) are competitive and more flexible thanother financing options available to many public sectorborrowers.

Repayment Terms
The IBRD Flexible Loan (IFL) allows borrowers to customize
repayment terms (i.e. grace period, repayment period, andamortization profile) to meet debt management or projectneeds. For example, if the objective is to reduce the overall
refinancing risk of the debt portfolio, a borrower may choose
repayment terms that smooth out the debt service profile. This
flexibility can also be used in investment operations to match
repayment terms to a project’s expected cash flows.
IFL’s maximum final maturity is 35 years including graceperiod 1. The maximum weighted average maturity or average
repayment maturity (ARM) is 20 years. 2Pricing
The price of the IFL reflects IBRD’s AAA credit rating and isstable and transparent. Components of the pricing include theinterest rate, front-end fee and commitment fee. The interest
rate consists of a market-based variable reference rate and a1
For some projects addressing Global Challenges with Cross Border
Externalities, the maximum loan maturity is extended to up to 50 years and theARM up to 25 years.
2The repayment schedules of Development Policy Loans with a DeferredDrawdown Option (DPL DDOs) including Catastrophe Risk DDOs (CAT DDOs)
may be determined at the time of drawdown within prevailing maturity limits.

IBRD Flexible Loan with Variable Spread: Major Terms and Conditions

variable spread. Interest is paid on the disbursed andoutstanding amount of the loan. The reference rate varies bycurrency (SOFR for USD, TONA for JPY, SONIA for GBP andEURIBOR for EUR). A one-time front-end fee is charged on thecommitted loan amount. 3 This fee may be paid by theborrower up front from its own resources or financed out of
the loan proceeds. A commitment fee, payable semi-annually,
is charged on the undisbursed amount of the loan and starts
accruing 60 days after the Loan Agreement is signed.
The variable spread includes a contractual spread, a maturity
premium (where applicable), and a charge to cover the Bank’s
average funding spread. IBRD conducts an annual review ofloan charges — the contractual lending spread, the maturity
premium, the front-end fee and the commitment fee — toensure that pricing is aligned with the prevailing needs of theinstitution and its shareholders. The Bank recalculates thefunding cost element of the variable spread on a quarterly
basis.

Risk Management Tools
The IFL includes options to manage currency and/or interest
rate risks over the life of the loan. These options areembedded in the loan agreement and can be executed at aborrower’s request at any time.
To mitigate currency risk, the IFL offers a currency conversion
option to change the currency of undisbursed and/ordisbursed balances between the major currencies offered (seepage two of this document). Subject to the existence of a liquidswap market, borrowers may also choose to repay an IBRD
loan in a growing number of local currencies.
To manage interest rate risk, borrowers have the option ofchanging from a floating market reference rate to the fixed
rate equivalent of that reference rate or vice versa, while
maintaining the variable spread. The IFL also offers theflexibility of using interest rate caps or collars to manageinterest rate volatility.
IFL also covers small states, whose economies are
disproportionally vulnerable, against natural disasters. By
selecting to include the Climate Resilient Debt Clause (CRDC) intheir loan agreement, eligible borrowers 4 can defer theirprincipal and interest payments and other loan charges for upto two years in case of predefined disasters.
3DPL DDOs including CAT DDOs carry similar lending rates as regular IBRDloans. However, loan charges vary according to the type of DDO. Different
lending rates also apply to Special Development Policy Loans (SDPLs).
4IBRD and IDA-eligible Small State Economies, members of Small States Forumand Small Island Developing States as defined by UN

Updated as of July 2024

PRODUCT NOTE
Lending Rate

Lending rate consists of a variable reference rate plus a variable spread. The lending rate is reset on each interest
payment date and applies to interest periods beginning on those dates. The reference rate is the value of the applicable
market rate for a six month interest rate period (SOFR for USD, TONA for JPY, SONIA for GBP, and EURIBOR for EUR). The
loan interest rate charge can be capitalized.
The Variable spread, resets quarterly: Consists of IBRD's average cost margin on related funding relative to the applicablereference rate plus IBRD’s contractual spread of 0.50% and a maturity premium for loans with average maturities greaterthan eight years. The variable spread is recalculated on a quarterly basis and applies to the interest period commencing
on the interest payment date falling on, or immediately following the recalculation date, but falling prior to the nextrecalculation date.

Fees

Front-end fee of 0.25% of loan amount is due within 60 days of effectiveness date of the project, but before the firstwithdrawal from the loan, and may be financed out of loan proceeds. Commitment fee of 0.25% is charged on
undisbursed balances and starts to accrue 60 days after signing date. The CRDC is offered to eligible borrowers at no costto them.

Maturity
Limits andRepayment
Schedules

Policy Limits: Maximum final maturity is 35 years including grace period (during which only interest is paid), while
maximum weighted average maturity is 20 years. . For some projects addressing Global Challenges with Cross Border
Externalities, the maximum loan maturity is extended to up to 50 years and the ARM up to 25 years. For loans with CRDC,after the 2-year deferral, the loan is repaid according to the original average weighted maturity without extending the final
due date.
Borrowers have the flexibility to tailor the repayment schedule during loan preparation and, once the loan is approved byIBRD, the repayment schedule cannot be changed, except to accommodate for approved conversion to local currency.
Borrowers have a choice of two types of repayment schedules:• Commitment-linked Repayment Schedule: The loan repayment schedule begins at loan commitment. Principalrepayments are calculated as a share of the total loan amount disbursed and outstanding.
• Disbursement-linked Repayment Schedule: The loan repayment schedule is linked to actual disbursements. Eachsemester’s group of disbursements is similar to a tranche with its own repayment terms (i.e., grace period, final
maturity, and repayment pattern). Each semester’s group of disbursements would have the same repayment terms.

LoanCurrencies• Currency of Commitment: Loans are offered in most major currencies like EUR, GBP, JPY, and USD. Other currencies
may be available if the IBRD can fund itself efficiently in the market. Borrowers may contract loans in more than one
currency.
• Currency of Disbursement: Disbursements may take place in any currency, as requested by the client. Currencies areacquired by IBRD and passed on to the client at market terms. The loan obligation, however, remains in the currency ofcommitment.
• Currency of Repayment: The loan principal, interest, and any other fees must be repaid in the currency of commitment.
However, currency conversion options may be available as specified below.

Currency
Conversion• Undisbursed Amounts: All or part of the undisbursed balance may be converted from one major currency into anothermajor currency which IBRD can efficiently intermediate (see “Currency of Commitment” above).
• Disbursed Amounts: All or part of the disbursed and outstanding balance may be converted into another currency,
including the borrower’s local currency, subject to the availability of a liquid swap market for that currency. Amounts
converted to certain local currencies may be repaid in a major currency, although the borrower’s obligation will bedenominated in the local currency.

Interest Rate
Conversion

The reference rate applicable to the disbursed balance may be converted to a fixed rate and may be subsequently
converted to a variable reference rate. The variable spread component of the lending rate, however, will not be converted.
Alternatively, a cap or collar on the reference rate may be established for up to the entire disbursed and outstanding
amount.

Conversion
Fees

Transaction fee(s) for currency and/or interest rate conversions may apply (http://treasury.worldbank.org).

PaymentDates

Debt service payment dates will be on the 1st or 15th day of a month and semi-annually thereafter, as decided by theborrower during loan negotiation.

Prepayment

Borrowers may prepay all or part of the outstanding loan balance at any time. Prepayment charges apply based on (i)IBRD’s redeployment cost of the prepaid loan amount and (ii) the cost of unwinding any outstanding interest or currency
conversions plus any transaction fees applicable to amounts that were previously converted.

The above is not necessarily a complete treatment of the terms and conditions of these loans. Borrowers should refer to their loanagreements and General Conditions with respect to their individual loans.
Contact: Miguel Navarro-Martin, Manager, Financial Products & Client Solutions, The World Bank Treasury
 mnavarromartin@worldbank.org  +1 (202) 458 4722
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.

IBRD Flexible Loan with Variable Spread: Major Terms and Conditions

Updated as of July 2024