FMO uses A/B loan structures to mobilize banks and institutional investors as co-financiers. Under this structure, FMO provides the A portion of the loan from its own resources. Other development finance institutions (DFIs) can join in this A-loan via a parallel loan structure. We bring commercial parties - impact investors or institutional investors - on board by offering them the possibility to participate via the B-loan structure.
How it works
Under the A/B loan structure, FMO acts as the arranger, lender of record and facility agent for the whole A/B loan. There is only one term facility agreement with the borrower.
As FMO, we are the leading negotiating party and administrator of the whole A/B Loan, including the individual sub-participation agreements with the participants in the B-loan. Such structure offers benefits for both the borrowers, the partnering financial institutions and participants in the B-loans.
- FMO originates the loan and adds value to the structure among others with its ESG policies and deal structuring expertise. We also monitor the loan as an integral part of our own portfolio.
- As a responsible investor, FMO always retains a substantial portion of the whole A/B loan on its own book (the A portion) whereby the tenor of the A-loan is often longer than the tenor of the B-Loan.
- The borrower signs a single loan agreement with FMO, and FMO signs a participation agreement with the participants. While FMO is the lender of record, the participants’ commitment via B-loans is known to the borrower and will be disclosed to the borrower.
Benefits for borrowers:
- The B-loan can complement the customer's financing package;
- Borrowers can achieve financing with longer tenors than those available in the market;
- The A/B loan program allows simplified administration and documentation since FMO is the sole lender of record;
- The B-loan syndication can introduce new banking relationships to the borrower.
- The borrower may benefit from a withholding tax exemption on interest payments made to FMO on the A-loan and/or the B-loan based on either the relevant double tax treaty or domestic law, FMO’s status of government-controlled development financial institution could be of relevance (the withholding tax assessment should be made on a case-by-case basis).
Benefits for B-loan participants:
- Participants benefit from FMO’s knowhow on e.g. (re-)structuring loans in developing countries and risk management expertise
- Participants benefit from FMO’s environmental and social leadership
- Participants benefit from FMO’s status as a development finance institution and FMO’s relationships with governments
- Participants can be introduced to new clients/countries through a B-loan participation.