The Development Policy Loan (DPL) with a Deferred Drawdown Option (DPL DDO) is a contingent credit line that allows the borrower to rapidly meet its financing requirements following a shortfall in resources due to adverse economic events such as a downturn in economic growth or unfavorable changes in commodity prices or terms of trade. The DPL DDO also provides a formal basis for continuing a policy-based engagement with the World Bank when no immediate need for funding exists.
Key Features
Under the DPL DDO, the borrower may defer disbursement of a DPL for up to three years, renewable for an additional three years. The loan proceeds may be drawn down at any time during the three year drawdown period unless the Bank has notified the borrower that one of the drawdown conditions – adequate macroeconomic framework and satisfactory program implementation – is not being met. In order to provide greater certainty to the borrower that the funds will be available when needed, the Bank will periodically monitor the borrower’s compliance with the drawdown conditions.
Pricing
Disbursements will be priced at the prevailing spread over the reference rate for IBRD loans –comprised of the contractual spread, funding cost, maturity premium, and market risk premium– at the time of drawdown. The calculation of the average repayment maturity begins at loan effectiveness for the determination of the applicable maturity premium, but at withdrawal for the remaining components of the spread. In addition to the one time front-end fee of 0.25%, DPL DDOs are subject to a stand-by fee¹ of 0.50% per annum on undisbursed balances, accruing from the date of effectiveness.
^{1. The stand-by fee payable during the first year for health-related COVID-19 operations under the $6 billion Fast Track COVID19 Facility (approved by the Board on March 17, 2020) is waived.}
The Development Policy Loan (DPL) with a Catastrophe Deferred Drawdown Option (DPL with Cat DDO) is a contingent credit line that provides financing following natural disaster events or health related emergencies, a time when liquidity constraints are usually highest. Cat DDOs enhance countries’ capacity to plan for and manage crises by securing access to financing before disaster strikes and then disbursing quickly once the event occurs.
How does a DPL with Cat DDO work?
Pricing
Repayment Terms and Lending Rates follows IFL or IDA concessional financing at time of drawdown (except that average repayment maturity for maturity premium calculated at loan effectiveness). Fees for IBRD countries are a one time front-end fee¹of 0.50% on the committed loan amount, and a renewal fee of 0.25% payable on each renewal. There are limits for IBRD countries: the lower of $500m or 0.25% of GDP.
^{1. For Cat-DDOs approved under the $6 billion Fast Track COVID19 Facility (approved by the Board on March 17, 2020), the front-end fee is reduced to 0.25%}
Investment Project Financing (IPF) with a Deferred Drawdown Option (DDO) is a contingent credit line that allows the borrower shock-proof specific projects or specific public institutions’ funds. It allows borrowers to immediately access the entire financing amount for specific, pre-defined expenditures for projects or institutions when a pre-defined trigger is met.
Key Features
The IPF DDO is governed by World Bank’s IPF policies, and can be a component of a larger IPF contingent financing. The IPF-DDO has a five-year drawdown period, which can be renewed for three more years and a pre-specified drawdown trigger, depending on the nature of the project. For example, for an IPF-DDO, structured to backstop the reserves of a Bank Deposit Guarantee Fund, the pre-defined trigger may be a bank failure. Or if IPF-DDO is backstopping an Energy Fund that covers the increased cost of hydropower generation, the trigger may be a national declaration of drought conditions.
The repayment schedule for the IPF-DDO is defined at the time of withdrawal. A tailored repayment schedule for each drawdown is possible, subject to prevailing policy limits. In the case of a drawdown, average repayment maturity (ARM) would be calculated from effectiveness.
Pricing
IPF-DDO has the same lending rate as regular IPF loans but set at drawdown. Disbursements will be priced at the prevailing spread over the reference rate for IBRD loans – comprising the contractual spread, funding cost, and maturity premium– at the time of drawdown. In addition to the one-time front-end fee of 0.25%, IPF-DDOs are subject to a stand-by fee of 0.50% per annum on undisbursed balances, accruing from the date of effectiveness. For current pricing information, please visit the Treasury website.