World Bank Board Approves Phase Out of the Currency and Dollar Pool Loan Programs
Currency pool loans were introduced in the early 1980s to reduce interest rate volatility for borrowers. The “currency pool” referred to the fact that its underlying debt is in multiple currencies, (primarily dollar, euro and yen). The interest rate was a slow, moving average of historical long-term rates. It would lag the rise or fall in market rates. Borrowers would pay lower than prevailing market rates when interest rates were rising and vice versa, with their gains or losses relative to market rates evening out over whole interest-rate cycles. In the 1990s, borrowers were allowed to convert currency pool loans to single currency pool loans in either dollars or euros. Both programs were discontinued for new commitments in 2001.
Under the terms of this proposal, borrowers with Currency Pool and Dollar Pool loans have the option of converting the interest rate basis on these loans to a variable, 6 month LIBOR plus one percentage point or the fixed rate equivalent of this rate. In the case of the Currency Pool loans, LIBOR will be the weighted average of the LIBOR rates in the three major currencies of the Pool in the ratio 1 USD : 1 Euro : 125 Yen. The proposal also entails a prepayment provision based on the re-deployment cost for the loans so converted.
Borrowers have received the proposal package containing:
- the legal documentation including the offer to modify interest rate and prepayment provisions and a sample of the letter of request;
- the list of loans made to the borrower which are eligible for the conversion;
- the technical and financial details of the proposal; and
- the procedures for conversion.
From that date until June 30, 2009, borrowers may at any time request a conversion of the interest rate basis for any of their outstanding Currency Pool loans and/or Dollar Pool loans by using the Letter of Request included in the package sent to them. The earliest possible date at which any such conversion could become effective, is the first interest payment date falling on or after January 1, 2007.
For questions or more information, please contact us by telephone at (202) 458-1122, fax at (202) 522-2102 or email at cpl@worldbank.org.
The currency composition of borrowers' currency pool loan obligations reflects that of the currency pool and is the same for all borrowers. At least 90% of the US dollar equivalent value of the currency pool is maintained in fixed currency ratios of 1 US dollar: 125 Japanese yen: 1 euro.
