On November the 26th, 2003, the Bank executed the first swap transaction under a Master Derivatives Agreement (MDA) entered into between the World Bank and one of its borrowers. The swap will transform Bulgaria’s USD obligation on one of its variable spread loans to a EUR obligation. Bulgaria’s reason for requesting the swap is its desire to reduce the USD debt in the government’s liabilities portfolio in line with its debt management strategy.
The Government of Bulgaria and the World Bank signed a Master Derivatives Agreement (MDA) on July 29, 2003, allowing the Government of Bulgaria to use a range of hedging products linked to existing World Bank loans to assist Bulgaria in reducing its currency and interest rate risks. These hedging products include currency swaps, interest rate swaps, caps and collars and, on a case by case basis, commodity swaps. In working toward an agreement, the Bulgarian government was able to rely on support from the World Bank’s Treasury, Legal and Operational staff in considering the legal and technical aspects associated with the World Bank’s hedging products, within the government’s broader financial management framework.
The hedging products offered by the World Bank allow borrowers to use standard market techniques to transform the risk characteristics of their outstanding World Bank loans. In providing these financial products, the World Bank stands between market institutions and its borrowers, entering into separate financial contracts with each of them. Borrowers therefore benefit from financial terms that reflect the Bank’s own AAA credit rating. The World Bank uses one of the standard derivatives agreements published by the International Swaps and Derivatives Association, Inc. (ISDA) (the ISDA Master Agreement – Multicurrency - Cross Border), as documentation for clients’ hedging transactions.
for more information on this transaction contact, Hala Khattar at 202-458-80717 |
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