When an IFC loan includes financing from the market through the B Loan structure, IFC retains a portion of the loan for its own account (the "A Loan"), and sells participations in the remaining portion to participants (the "B Loan"). The borrower signs a single Loan Agreement with IFC, and IFC signs a Participation Agreement with the participants. IFC is the sole contractual lender for the borrower. While IFC is the lender of record, the participants' involvement is known to the borrower, and is included in any transaction and publicity.
The A/B Loan structure allows participants to fully benefit from IFC's status as a multilateral development institution. All payments including principal, interest, and fees gain the advantages of IFC's Preferred Creditor Status. IFC commits to the participants to allocate payments pro-rata between the A and B Loan. As a result, IFC cannot be paid in full until all participants are paid in full. Similarly, a default to a participant would be a default to IFC.
Benefits to Participants
- Participants share IFC's Preferred Creditor Status, and therefore mitigate transfer and convertibility risk;
- Participants benefit from universal recognition of IFC's risk mitigation;
- Participants can benefit from IFC’s relations with governments through the World Bank Group;
- Participants benefit from IFC’s structuring and restructuring skills;
- Participants benefit from IFC's environmental and social leadership; and
- Participants can be introduced to new clients/countries through a B Loan participation.
Benefits to Borrowers
- The B Loan can complete the client's financing package;
- Borrowers can achieve financing with longer tenors than otherwise available;
- The entire IFC financing is exempt from withholding taxes;
- The A/B Loan structure allows simplified administration and documentation since IFC is the sole lender of record; and
- The B Loan syndication can introduce new banking relationships to the borrower.