WORLD BANK LIBOR Transition

Frequently Asked Questions – Client Connection

last updated: December 16, 2021

TABLE OF CONTENTS
1. What is LIBOR and why is it important?
2. Why is LIBOR being replaced?
3. Which products and market participants are affected by the LIBOR transition?
4. Updated (Dec 2021) What will replace LIBOR? Is it likely to be a single new benchmark, or
will there be differences in benchmarks across products, regions, and institutions? What are
the main differences between LIBOR and the alternative benchmark(s)?
5. Why will EURIBOR not be replaced along with the other IBORs? How is it being reformed?
6. How has the Financial Conduct Authority’s (FCA’s) March 5, 2021 confirmation of the
staggered cessation of LIBOR affected the World Bank’s LIBOR transition timeline and
outreach to borrowers?
7. Why does LIBOR and its transition matter to borrowers?
8. What is the impact of LIBOR transition on loans to the World Bank and its clients?
9. Which alternative reference rates will the World Bank use moving forward?
10. Will there be a new structure of pricing for IBRD Flexible loans?
11. Updated (Dec 2021) Daily Secured Overnight Financing Rate (SOFR) seems to fluctuate more
than LIBOR. Will SOFR-based interest payments fluctuate as much as daily SOFR and
possibly make interest payments more expensive when SOFR experiences extreme
fluctuations?
12. Are there options for borrowers to mitigate the risk of interest rate fluctuations during the
LIBOR transition process?
13. Updated (Dec 2021) How is the World Bank handling the transition with borrowers?
14. Updated (Dec 2021) What if a borrower objects to the proposal to change to alternative
reference rates?
15. What will be the impact of the transition from LIBOR to alternative reference rates on the
World Bank’s funding and derivatives?
16. How has the World Bank communicated with borrowers?
17. What is the impact of the transition from LIBOR on other Multilateral Development Banks?
18. What is the timeline from regulators for USD LIBOR discontinuation and move to alternative
reference rates?
19. What is the timeline from regulators for EUR, GBP, JPY, LIBOR discontinuation and the move
to alternative reference rate?
20. What are the alternative reference rates that the World Bank will adopt for new loan offers
based on the transition guidance provided by the regulators?
21. When will the World Bank cease to offer the Variable Spread Loan (VSL) based on LIBOR
reference rates and start offering VSL based on the new reference rates?
22. When will the World Bank switch the existing VSLs based on LIBOR reference rates to VSLs
based on the new reference rates?

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23. When will the World Bank switch the existing fixed spread loans (FSLs) based on LIBOR
reference rates to FSLs based on the new reference rates?
24. Why is the switch-over date different for the existing FSLs denominated in USD?
25. What will be the guiding principles of pricing during the transition period for the USD
denominated VSL offering?
26. What will be the guiding principles of pricing during the transition period for the VSL
denominated in EUR, GBP, JPY?
27. How will the loan pricing structure work during the transition period for VSL?
28. How will the loan pricing structure work after the transition period for VSL?
29. How will the pricing work after the transition to the alternative reference rates for FSL?
30. NEW (Dec 2021) When will the World Bank announce the applicable spreads based on the
new alternative reference rates?
31. What will be the transition process to the new reference rates for LIBOR-based VSL with a
pre-existing conversion for fixing the reference rate against LIBOR? What about any other
existing conversions on the loan terms?
32. What will be the transition process to the new reference rates for LIBOR-based VSL with a
pre-existing conversion to fix the spread component of the loan?
33. Will the conversion provisions in the IBRD Flexible Loan (interest rate and currency
conversions) remain available after the World Bank transitions out of the LIBOR?
34. How will the transition process work for IDA loans?
35. Updated (Dec 2021) Will there be any changes to borrowers’ current billing cycle after the
World Bank transitions to the new reference rates?
36. NEW (Dec 2021) Will borrowers be able to estimate their total lending rate? If so, when can
they estimate or see the total lending rate?
37. Updated (Dec 2021) Where can I obtain more information and who in the World Bank can be
contacted for more information regarding the LIBOR transition?

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1. What is LIBOR and why is it important?
The London Interbank Offered Rate, or LIBOR, is an interest rate benchmark that is
administered by Intercontinental Exchange (ICE) Benchmark Administration, Inc. It began
being referenced in the early 1990s.

LIBOR is the most used benchmark reference rate or Interbank Offered Rate (IBOR) in the
global financial markets, underpinning more than $400 trillion in transactions globally. It is
derived from a daily survey of large banks (referred to as LIBOR “panel banks”), who provide
estimates of how much it would cost them to borrow from each other on an unsecured basis
(i.e., without putting up collateral) for set periods of time and in particular currencies.

LIBOR is often referenced in loan, derivative, and bond documentation, as well as in other
types of documentation (e.g., securitization products, mortgages, options, etc.), to calculate
interest payments under those products.

Additional information about LIBOR is available at: https://www.theice.com/iba/libor.

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2. Why is LIBOR being replaced?

The integrity of LIBOR was called into question in 2008, when several banks contributing to
its calculation were accused of colluding to manipulate the rate.

In 2014, the Financial Stability Board published a report explaining that benchmarks, such as
LIBOR, should be based on actual transactions to the greatest extent possible. Certain changes
were therefore made to the way in which LIBOR is calculated to try and base it on transactions
to a greater extent. However, since there are now fewer banks lending to each other on an
unsecured basis, LIBOR is often calculated by reference to the “expert judgment” of panel
banks (i.e., estimates regarding how much they think it would cost them to borrow from other
banks).

In July 2017, the U.K. Financial Conduct Authority (FCA), the LIBOR regulator, announced
that, despite efforts to base LIBOR more firmly on transactions, the underlying market that
LIBOR seeks to measure (unsecured interbank lending) is no longer sufficiently active. As a
result, while the panel banks had agreed to continue submitting to LIBOR until the end of
2021, after this date the FCA would not compel banks to submit to LIBOR. The FCA’s
announcement initiated LIBOR’s phased discontinuation.

Since 2017 regulators began to urge global market participants to plan for the cessation of
LIBOR by the end of 2021 and encouraged them to transition from LIBOR to alternative “risk-
free” rates (RFRs).

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 On March 5, 2021, the FCA announced a staggered timetable for future cessation and loss of
representativeness of the LIBOR benchmarks:

• December 31, 2021 for most LIBOR settings, and

• June 30, 2023 for remaining USD LIBOR benchmarks, including 3-month and 6-month
USD LIBOR settings, to give legacy contracts sufficient time to wind down.

Despite the extension of publication for certain USD LIBORs to June 30, 2023, U.S. and UK
regulators’ guidance remains that LIBOR should not be used for new contracts after 2021,
except for limited circumstances. In conjunction with the FCA announcement, regulators have
emphasized that new LIBOR exposures after December 31, 2021 will be deemed a safety and
soundness issue. Alternative Reference Rates to LIBOR have been identified for all LIBOR
settings in USD, EUR, GBP, CHF, and JPY, as listed below.

Summary of Alternative Reference Rates

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3. Which products and market participants are affected by the LIBOR transition?
All market participants, including the World Bank, that have any exposure to LIBOR-linked
products such as loans, mortgages, bonds, derivatives, and securitization products are affected.
This is a bigger issue than many people realize, as LIBOR has been embedded in the global
market so extensively that most market participants—such as banks, manufacturers, brokers,
insurers, and retail businesses—are exposed to LIBOR.

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4. Updated (Dec 2021) What will replace LIBOR? Is it likely to be a single new benchmark,
or will there be differences in benchmarks across products, regions, and

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 institutions? What are the main differences between LIBOR and the alternative
benchmark(s)?
LIBOR is being phased out across all its underlying currencies. The table below lists the
alternative reference rates (ARRs) that will replace LIBOR as determined by regulators and
financial market administrative bodies.

One notable exception is the Euro Interbank Offered Rate (EURIBOR), 1 which has undergone
reforms and for the time being is expected to remain in use as a financing benchmark. However,
whether EURIBOR is to be slowly supplanted by Euro Short-Term Rate (ESTR or €STR) or
another risk-free rate in the future remains unknown at this time.

For U.S. dollar markets, in 2017 the Alternative Reference Rates Committee (ARRC) selected
the Secured Overnight Financing Rate (SOFR) as the rate to represent best practices in U.S.
dollar derivatives and financial markets. SOFR is based on observable repo rates—the cost of
borrowing cash overnight collateralized by U.S. Treasury securities.

The ARRC, comprised of private market participants convened by the Federal Reserve Board
and the New York Fed, has led the efforts to determine the alternative benchmark rate. This
committee includes a representative from the World Bank.

Alternative Rate
Jurisdiction Working Group Rate Type Tenor
Reference Rate Administrator
Alternative
Secured Overnight
Reference Rates
United States Financing Rate New York Fed Secured* Overnight
Committee
(SOFR)
(ARRC)
Working Group
Sterling Overnight
on Sterling Risk- Bank of
Great Britain Index Average Unsecured Overnight
Free Reference England
(SONIA)
Rates
Working Group
Euro Short-Term European
European on Risk-Free
Rate (€STR) Central Bank Unsecured Overnight
Union Reference Rates
for the Euro Area
National
Swiss Average Rate
Working Group SIX Swiss
Switzerland Overnight Secured* Overnight
on Swiss Franc Exchange
(SARON)
Reference Rate
Tokyo Overnight Study Group on
Japan Average Rate Risk-Free Bank of Japan Unsecured Overnight
(TONA) Reference Rates
*Collateralized – so it takes the credit component out of the rate

1
The Euro Interbank Offered Rate (EURIBOR) is a daily reference rate, published by the European Money Markets Institute
(EMMI), representative of the rate at which credit institutions in the EU can borrow unsecured wholesale funds in euro.
EURIBOR has term maturities: 1- week, 1-month, 3-months, 6-months and 12-months.

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 The key differences between the alternative reference rates (ARRs) and LIBOR relate to
the term structure and credit risk.

Term structure:
LIBOR’s term structure is forward-looking and well-defined. LIBOR offers overnight, 1-
week, 1-month, 2-month, 3-month, 6-month, and 12-month terms. By their nature, ARRs are
backward-looking and have an overnight term structure. Forward-looking term rates are
published in the market but aren’t available for use by IBRD and IDA for asset/liability
reasons. As the markets develop, the World Bank will determine what, if any, use can be made
of forward-looking term rates for lending products.

Rate-setting methodology:
LIBOR is set in advance for a variety of tenors (i.e., forward-looking term rates) and
determined by the panel banks. By contrast, alternative reference rates are based on observable
market transactions and compounded in arrears (i.e., backward-looking daily rates).

Credit risk:
LIBOR is unsecured. The Swiss franc and U.S. dollar alternative rates are secured and require
calculating and applying a credit adjustment for CHF and USD when making the transition.

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5. Why will EURIBOR not be replaced along with the other LIBORs? How is it being
reformed?
Unlike LIBOR, which depending on the tenor is to be terminated by December 31, 2021 and
June 30, 2023, EURIBOR has been reformed and is expected to remain as a financing
benchmark and continue to be published by the European Money Markets Institute (EMMI) 2
beyond 2021. The reform is comprised of moving to a “hybrid” Benchmark Regulation
(BMR) 3-compliant methodology 4 and reformulating the EURIBOR specification.

2
On 3 July 2019, EMMI was granted the authorization and administration of EURIBOR by the Belgian Financial Services and
Markets Authority (FSMA) under Art.34 of the EU BMR.
3
The EU Benchmarks Regulation (EU BMR) introduces a regime for benchmark administrators, contributors, and users, in order
to ensure accuracy and reliability of indices used as benchmarks in financial instruments and contracts, or to measure the
performance of investment funds in the European Union. It was published in June 2016 and most rules have started to apply as of
January 1, 2018, with transitional provisions until January 1, 2020.
4The hybrid methodology for EURIBOR is anchored in transactions to the extent possible and follows a hierarchical approach
consisting of three levels. Each day, each individual panel bank’s contribution, for each defined tenor, will be determined on the
basis of one of the three levels: level 1 contributions are based solely on eligible transactions in the underlying interest at the
defined tenor. Level 2 contributions are based on transactions in the underlying interest across the money market maturity
spectrum and from recent TARGET days, using a defined range of formulaic calculation techniques provided by EMMI. Level 3
contributions are based on transactions in the underlying interest and/or other data from a range of markets closely related to the
unsecured euro money market, using a combination of modelling techniques and/or the panel bank’s judgment.

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 European Money Markets Institute (EMMI) has reformed the EURIBOR benchmark for two
main reasons: 1) because the benchmark regulation and the guidelines of international
organizations on the administration of benchmarks require that benchmarks be based on arms-
length transactions to the extent possible; and 2) to adapt the methodology to the evolving
circumstances in the market that EURIBOR seeks to measure. With the reform, EURIBOR is
now considered a more transparent, robust, and representative index, while minimizing the risk
of market manipulation.

Whether or not EURIBOR will be slowly supplanted by €STR or another risk-free rate in the
future remains unknown at this time.

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6. How has the Financial Conduct Authority’s (FCA’s) March 5, 2021 confirmation of the
staggered cessation of LIBOR affected the World Bank’s LIBOR transition timeline and
outreach to borrowers?
While the UK Financial Conduct Authority (FCA) initially announced in 2017 its plan for
discontinuation of the London Interbank Offered Rate (LIBOR) by December 31, 2021,
on March 5, 2021, the FCA confirmed that all the LIBOR settings will either cease to be
provided by any administrator or no longer be representative according to the following
timeline:
• All sterling, euro, Swiss franc and Japanese yen LIBOR settings, and the 1-week and
2-month USD LIBOR settings, will cease immediately following publication on
December 31, 2021.
• All remaining USD LIBOR settings, including the 6-month USD LIBOR, used as the
reference rate for IBRD and IDA loans, will cease immediately following publication on
June 30, 2023.

The announcement provides certainty on when the LIBOR panels will end and means that
market participants – including the World Bank – must prepare to transition out of LIBOR
starting January 1, 2022. The regulators are clear that the delay in the publication of the USD
LIBOR rates beyond December 31, 2021 is a concession to allow market participants to
transition certain existing contracts, but no new LIBOR contracts should be entered into after
December 31, 2021.
The time between December 31, 2021, and June 30, 2023 is commonly referred to as the
transition period for the USD LIBOR. The World Bank continues preparing for the transition
from every perspective: lending, funding, investments, accounting, operations, information
technology, and legal, as well as borrower outreach; considering portfolios of loans and other
instruments that use LIBOR as a benchmark.
The LIBOR omnibus amendment process remains critical as most of the World Bank’s loan
book will not mature by June 30, 2023. Putting in place appropriate fallback provisions remains
a top priority as doing so allows the World Bank to switch legacy loans out of LIBOR starting
January 1, 2022.

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7. Why does LIBOR and its transition matter to borrowers?

The LIBOR transition will impact all market participants, including the World Bank and
borrowers, in all industries in various ways, both operationally and financially.

IBRD loans and IDA non-concessional loans have used LIBOR or EURIBOR 5 as reference
rates. Interest charged to borrowers is based on the reference rate plus a variable or fixed
spread 6.

Since the announcement of LIBOR’s discontinuation, institutions with LIBOR-linked

financial products must prepare to shift to alternative reference rates (ARRs).

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8. What is the impact of LIBOR transition on loans to the World Bank and its clients?
Post LIBOR transition, all new and existing LIBOR-based loans will be referenced to new
reference rates. On July 22, 2021, the World Bank’s Board of Executive Directors approved
the use of these rates and the transition schedule.

To ensure a smooth transition, the World Bank is taking a proactive approach to mitigate the
risks of the LIBOR transition, for the World Bank and its clients. The World Bank has
completed an impact assessment and is closely monitoring industry developments. It also
continues to engage with the Board and borrowers and has set up working groups to develop
solutions that minimize the implications of the transition, both for borrowers and the Bank.

Preserving alignment between the reference rates used by the Bank to fund itself and lend to
clients is an important component in passing through the most stable and cost-effective rates
to borrowers. This is consistent with the “principle of fairness” and the “principle of
equivalence” with respect to implementing the new market reference rates in loans, which
reflects the cost pass-through of IBRD’s actual funding costs.

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5
The Euro Interbank Offered Rate (EURIBOR) is a daily reference rate, published by the European Money Markets
Institute (EMMI), representative of the rate at which credit institutions in the EU can borrow unsecured wholesale
funds in euro. EURIBOR has term maturities: 1- week, 1-month, 3-months, 6-months and 12-months.
6
Refers to legacy IBRD flexible loans with fixed spread terms (FSL) as the offering of new FSL has been suspended
effective April 1, 2021.

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9. Which alternative reference rates will the World Bank use moving forward?
The World Bank (IBRD/IDA) will be using alternative reference rates (ARRs) to support
World Bank’s asset and liability management. Note that for IDA, LIBOR transition affects
only the non-concessional financing, which is offered on IBRD Flexible Loans (IFL) terms.

The most common ARRs for five currencies (USD, EUR, GBP, JPY and CHF) have been
identified by national working groups in respective jurisdictions. They are summarized below.

The World Bank has decided to adopt the following alternative reference rates:
• SOFR for USD denominated loans
• SONIA for GBP denominated loans
• TONA for JPY denominated loans
• EURIBOR for legacy EUR denominated loans based on LIBOR

Note that EURIBOR will continue as the reference rate for EUR denominated loans.

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IBRD/IDA LIBOR Transition – Frequently Asked Questions 9|Page

10. Will there be a new structure of pricing for existing IBRD Flexible loans?
The pricing of IBRD Flexible Loans (IFL) is based on the cost of funding obtained by IBRD
to which contractual spreads and the applicable maturity premium are added.

When LIBOR ceases to exist, the cost pass-through pricing structure of IFL will continue,
except that it will be in reference to the new reference rates and include a necessary spread
adjustment between LIBOR and the new reference rate, as illustrated below.

The World Bank will ensure that the current loan pricing policy remains intact with continued
adherence to the principles of fairness and equivalence.

Variable-Spread IFL Lending Rate Components

Fixed-Spread IFL Lending Rate Components

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11. Updated (Dec 2021) Daily Secured Overnight Financing Rate (SOFR) seems to fluctuate
more than LIBOR. Will SOFR-based interest payments fluctuate as much as daily SOFR
and possibly make interest payments more expensive when SOFR experiences extreme
fluctuations?

The simple answer is “No.”

SOFR is derived from daily repurchase agreement data from multiple and diverse sources.
Although it is true that these repurchase agreement rates experience seasonal volatility and
fluctuate based on market activities, it will not affect interest payments, as loan interest
payments will be based on the daily compounded SOFR rate over a period of six months.

The graph below compares the volatility of daily SOFR (grey) to that of the six-month
compounded SOFR (blue). As the graph indicates, the 6-month compounded SOFR rate does
not appear to be affected much by the fluctuations observed in daily SOFR.

When LIBOR ceases to exist, the current pricing structure of IFL will continue, except that it
will be based on SOFR as the reference rate for USD loans and the cost of funding will include
a variable spread adjustment between LIBOR and SOFR for the variable spread loans and an
ISDA determined spread adjustment for the legacy fixed spread loans at the time of switch-
over to the new ARR.

This spread adjustment is required to keep the cost of loans for borrowers economically neutral
after the transition to SOFR.

This spread is needed as LIBOR is an unsecured and estimate-based rate (i.e., it represents
estimated rates at which banks purportedly borrow from one another, and thus includes a credit
risk premium), whereas SOFR is a secured funding rate that is based on repurchase agreement
transactions of U.S. Treasury securities (i.e., secured or risk-free rate). As these two rates are
fundamentally different, a spread exists between LIBOR and SOFR. This spread needs to be
considered for the new loan pricing to make the SOFR-based loan pricing economically
comparable with LIBOR-based loan pricing.

The graph below compares the historical LIBOR (red) and SOFR (blue) and SOFR to LIBOR
spreads (gap between red and blue line). As the graph indicates, a spread adjustment is required
to make the new SOFR-based loan pricing comparable to the current LIBOR-based loan
pricing.

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 Historical Graph of 6-Month LIBOR vs. SOFR (6-Month Compounded and Daily)

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12. Are there options for borrowers to mitigate the risk of interest rate fluctuations during
the LIBOR transition process?
For the IBRD Flexible loan (IFL), the loan interest rate has two components - a market-based
variable reference rate and spread that comprises a variable or fixed funding spread 7 and a
Board approved loan spread. Historically, the market-based reference rate component of the
loan interest rate is more volatile than the Bank’s funding spread component. Borrowers can
significantly minimize the interest rate risk and reduce most of the uncertainty in their IBRD
loan interest rate by fixing the market-based reference rate component.

IBRD loans already have conversion options available to borrowers, including to fix the
reference rate, throughout the life of their loan. The option to fix the market reference rate
remains available to borrowers during the Bank’s LIBOR transition process, upon request. The
Bank’s acceptance/approval of a borrower’s request to utilize any conversion option is subject
to the Bank’s ability to hedge the underlying transactions.

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7
Fixed Spread Terms are no longer offered effective April 1, 2021.

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13. Updated (Dec 2021) How is the World Bank handling the transition with borrowers?
The transition to new reference rates follows a phased approach and the first stage involves
ensuring that there are provisions governing financial transactions (fallback provisions) in loan
agreements to transition to new reference rates. The World Bank’s General Conditions were
updated in 2018 to enhance the reference rate replacement under the loan if LIBOR or
EURIBOR (i) permanently cease to exist or (ii) in the World Bank’s determination, become
no longer acceptable for the World Bank’s asset and liability management purposes. Under the
loans governed by the General Conditions of 2018 and later, the World Bank can affect such
reference rate replacement by a unilateral notice to the borrower.

Beginning in July 2020, the World Bank began implementing a LIBOR omnibus amendment
process with borrowers for pre-2018 loan agreements (i.e., legacy loans) to align the reference
rate replacement mechanism for all legacy loans with that provided in the General Conditions
of 2018. Since then, the World Bank has been working with borrowers to ensure that financing
agreements for legacy loans have fallback provisions that will allow for the switch from
LIBOR when the time comes. The World Bank and borrowers have made significant progress
in heeding this urgent call to amend legacy loan agreements. As of the end of November 2021,
86% of IBRD/IDA borrowing countries have signed the LIBOR omnibus amendment. Signing
of the LIBOR omnibus amendments has paved the way for both the World Bank and the
borrowers to have a smooth and effective transition from LIBOR to new reference rates.

Following the LIBOR omnibus amendment initiative, the World Bank notified borrowers (who
had not yet signed the LIBOR omnibus amendments) during August-October 2021 of the
reference rate replacements for their legacy loans in reliance on the provisions of the loan
agreements and their General Conditions, including as amended by the LIBOR omnibus
amendments. These notices provided the borrowers with the specific reference rates that will
be replacing LIBOR in their legacy loans as well as the timing of the switch with respect to
each individual loan.

As has been the case throughout the LIBOR transition initiative, the World Bank has
communicated with the borrowers with additional information and support around each
milestone of the LIBOR transition initiative (refer to Question 16). Following the distribution
of the reference rate replacement notices, the borrowers received further communications on
the subject, including the updated e-learning modules on the LIBOR transition (refer to
Question 37). The World Bank is also closely engaging with the borrowers in bilateral sessions
on LIBOR transition related questions.

The General Conditions of IBRD and IDA were revised effective January 1, 2022 with the
details of the new reference rate (aligned to the provisions of the reference rate replacement
notices). Underlying policies and procedures of the World Bank are also being revised to
reflect the same.

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14. Updated (Dec 2021) What if a borrower objects to the proposal to change to alternative
reference rates?
A minority of the loans were unremedied in terms of the reference rate replacement mechanism
as described in Question 13 above, due to the complexity and delays of certain borrowers’
internal processes for approval and signing of the LIBOR omnibus amendment. Such loans are
still subject to reference rate replacement via the World Bank notification, but the borrowers
have an objection right during the stated period with respect to such loans only. All loans are
expected to transition to the new reference rates in the indicated timelines, as approved by the
World Bank’s Board of Executive Directors. In the event any borrower decides to exercise its
objection right with respect to such a loan, it would remain in LIBOR, which creates a potential
asset and liability (ALM) mismatch for the World Bank and undermines its cost pass-through
lending model that benefits all borrowers. The World Bank is counting on borrowers’ support
in this important transition of its entire loan portfolio to the new reference rates. If any loan
remains with the old reference rates due to a borrower’s objection, the World Bank will have
to assess the ALM implications and consider further measures to address it.

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15. What will be the impact of the transition from LIBOR to alternative reference rates on
the World Bank’s funding and derivatives?
Like all financial instruments, debt and derivatives will need to reference the alternative
reference rates when the time comes. The World Bank will continue to follow market
developments in transitioning its debt and derivative books out of LIBOR. For derivatives,
IBRD and IDA adhered to the ISDA IBOR Fallbacks Supplement and Protocol in early 2021.
The ISDA Fallbacks Protocol 8 stipulates that the existing LIBOR reference rates will be
converted into alternative reference rates upon their cessation. For debt referencing LIBOR,
contract language identifies what happens when LIBOR ceases publication. New issuance has
included appropriate fallback language for the last few years.

For the USD debt and derivative books of the World Bank, since the 6-month USD LIBOR
will continue to be published until June 30, 2023, the existing debt and derivatives contracts
linked to the 6-month USD LIBOR will continue with LIBOR until June 2023 while new debt
and derivative contracts after December 31, 2021 will be in SOFR as mandated by the
regulators. As a result, there will be a mixed LIBOR-SOFR debt portfolio for the period from
January 1, 2022 to June 30, 2023.

For non-USD debt and derivative books of the World Bank, both the funding and derivative
books of the World Bank will transition by December 31, 2021.

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8Referring to ISDA IBOR Fallbacks Supplement and ISDA 2020 IBOR Fallbacks Protocol, which went into effect on January 25,
2021.

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16. How has the World Bank communicated with borrowers?
LIBOR Transition workshops were held during the 2020 and 2019 Annual Meetings. During
the 2019 Annual Meetings, Anshula Kant, MDCFO, and Jorge Familiar, WFA VP, led a
roundtable with IBRD’s top 10 borrowers in terms of loans outstanding (Argentina, Brazil,
China, Colombia, Egypt, India, Indonesia, Mexico, Poland, and Turkey). The aim was to create
awareness about the need to transition from LIBOR and agree on a principled approach to the
LIBOR phase-out for IBRD’s legacy loan portfolio. Similarly, during the 2020 Annual
Meeting, a high-level panel of distinguished speakers comprising Egypt’s Minister of
International Cooperation, the Alternative Reference Rate Committee (ARRC) chairperson, a
representative from Citibank, as well as representatives from the World Bank and Inter-
American Development Bank shared experiences and discussed ways to accelerate preparation
efforts in light of LIBOR’s cessation.

Borrowers have also received regular communications from the World Bank on LIBOR related
actions with respect to the World Bank’s IBRD Flexible Loan (IFL) (e.g., suspension of the
fixed spread terms in IFL and related conversions effective April 1, 2021). This information is
also made available to borrowers via FAQs and other resources such as the updated LIBOR
transition e-learning modules (refer to Question 37) in the Client Connection portal. In
addition, WFA, in collaboration with CMUs, LEG and TRE have been conducting bilateral
meetings with borrowers since August 2020 as part of the LIBOR omnibus amendment
initiative. Following the Board approval of Management’s proposals of the new reference rates
in July 2021, the World Bank provided an update to borrowers and sent reference rate
replacement notices to the borrowers with respect to their IBRD/IDA loans (see also Question
13).

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17. What is the impact of the transition from LIBOR on other Multilateral Development
Banks?
The World Bank and other Multilateral Development Banks (MDBs) have agreed to
collaborate and share knowledge and best practices on LIBOR transition.

The World Bank used the opportunity of the Annual MDB Controllers’ Forum and the
MDCFO Roundtable at the 2020 and 2019 Annual Meetings to discuss consistent and
coordinated approaches to managing loan portfolios and remediating legal agreements prior to
the LIBOR transition.

The MDBs are committed to working together and sharing information throughout the
transition period. While they acknowledge that there may be differences in approaches due to
the unique characteristics of each organization’s funding and loan portfolios, structure of loan
products, and terms and conditions for reference rate replacements, they will coordinate as

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 much as possible to make the transition process easier, more consistent, and smoother for their
borrowers.

The World Bank has organized an MDB LIBOR Community of Practice that includes IFC as
well as the African Development Bank, the Asian Development Bank, the Asian Infrastructure
Investment Bank, the European Bank for Reconstruction and Development, the European
Investment Bank, the Inter-American Development Bank, New Development Bank, and the
Islamic Development Bank.

This group meets quarterly to ensure that MDBs are providing aligned and consistent messages
to common borrowers. Most recently, the focus has been on ensuring alignment across the
MDB transition plans and timelines, which is beneficial to common borrowers. The World
Bank will continue to work together with the MDB community on shared pain points, and
processes to coordinate messages and leverage synergies.

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18. What is the timeline from regulators for USD LIBOR discontinuation and move to
alternative reference rates?
On March 5, 2021, the Financial Conduct Authority (FCA), LIBOR’s regulator, confirmed the
timetable for USD LIBOR discontinuation. December 31, 2021, for some tenors (one week
and 2-month) and June 30, 2023, for the remaining USD LIBOR benchmarks, including the 6-
month USD LIBOR. This development extends the publication of 6-month USD LIBOR by
an additional 18 months. The time between December 31, 2021, and June 30, 2023 is
commonly referred to as the “transition period” for the USD LIBOR. However, the FCA (and
as reinforced by the US Fed) effectively prohibited financial institutions from issuing any new
contracts that use 6-month USD LIBOR as a reference rate beginning January 1, 2022.

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19. What is the timeline from regulators for EUR, GBP, JPY, LIBOR discontinuation and
the move to alternative reference rate?
The date for discontinuation of EUR, GBP and JPY LIBOR is December 31, 2021.
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20. What are the alternative reference rates that the World Bank will adopt for new loan
offers based on the transition guidance provided by the regulators?
• USD: Secured Overnight Financing Rate (SOFR)
• GBP: Sterling Overnight Index Average (SONIA)
• JPY: Tokyo Overnight Average Rate (TONA)

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 There is no change to the reference rate of the EUR loan offers at this time, as they are
referenced to EURIBOR, which has been reformed and will continue to be published after
2021.
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21. When will the World Bank cease to offer the Variable Spread Loan (VSL) based on
LIBOR reference rates and start offering VSL based on the new reference rates?
The World Bank will stop offering the VSL based on LIBOR reference rates on December 31,
2021 and will start offering the VSL based on the new reference rates on January 1, 2022.

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22. When will the World Bank switch the existing VSLs based on LIBOR reference rates to
VSLs based on the new reference rates?
Starting from January 1, 2022, the reference rates for the existing VSLs based on LIBOR will
be replaced by the following reference rates:
• SOFR for USD denominated loans
• SONIA for GBP denominated loans
• TONA for JPY denominated loans
• EURIBOR for legacy EUR denominated loans based on LIBOR.

Legacy loans in EURIBOR will continue with the same reference rate. The switch over from
LIBOR to alternative reference rates for the existing individual VSLs will occur on each loan’s
first loan reset date falling on or after January 1, 2022, such that most of the VSL portfolio will
be switched out of LIBOR by June 30, 2022.

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23. When will the World Bank switch the existing fixed spread loans (FSLs) based on LIBOR
reference rates to FSLs based on the new reference rates?
The World Bank suspended the offering of new FSL on April 1, 2021.
Starting from January 1, 2022, LIBOR for the existing FSLs denominated in GBP, JPY and
EUR will be replaced by the following reference rates:
• SONIA for GBP denominated loans
• TONA for JPY denominated loans
• EURIBOR for legacy EUR denominated loans based on LIBOR.

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 Legacy loans in EURIBOR will continue with the same reference rate. Like VSLs, the switch
over from LIBOR to alternative reference rates for such existing individual FSLs will occur on
each loan’s first applicable loan reset date falling on or after January 1, 2022, such that most
of the FSL portfolio in non-USD will be switched out of LIBOR by June 30, 2022.
For the existing FSLs denominated in USD, LIBOR will be replaced by SOFR effective upon
each individual loan’s first applicable loan reset date falling on or after July 1, 2023, meaning
that the USD FSL portfolio will be switched out of LIBOR by December 31, 2023.
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24. Why is the switch-over date different for the existing FSLs denominated in USD?
December 31, 2021 was the initial date for discontinuation of USD LIBOR. However, on
March 5, 2021, the Financial Conduct Authority (FCA), LIBOR’s regulator, announced the
new timetable for LIBOR discontinuation: (i) December 31, 2021, for some tenors of USD
LIBOR (one week and 2-month) and (ii) June 30, 2023, for the remaining USD LIBOR
settings, including the 6-month USD LIBOR.
Accordingly, the World Bank determined to switch the USD FSLs to SOFR starting July 1,
2023 in line with the LIBOR debt and hedging instruments funding these loans, which will
also gradually transition out of LIBOR by December 31, 2023.
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25. What will be the guiding principles of pricing during the transition period for the USD
denominated VSL offering?
The World Bank will follow the “principle of fairness” and the “principle of equivalence” with
respect to implementing the new alternative reference rates. The equivalency principle upholds
that any replacement reference rate, together with other pricing elements in each loan, must
reflect the World Bank’s overall funding cost to achieve fairness to the World Bank and its
borrowers.

The switching of the World Bank’s existing funding pool from USD LIBOR to SOFR extends
from December 31, 2021 to December 31, 2023. However, per the regulator’s guidance,
starting January 1, 2022, the World Bank will no longer fund itself in LIBOR and will gradually
switch its funding portfolio from LIBOR to SOFR during the transition period. As a result, the
World Bank will have a funding pool based on both LIBOR (which will gradually decrease)
and SOFR (which will gradually increase) for USD denominated VSLs during the transition
period. Three key aspects of the pricing of USD denominated VSL during this transition period
are as follows:

(i) The long-standing World Bank pricing principle which calls for passing through its
funding cost will remain.

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 (ii) During the transition period from January 1, 2022, to December 31, 2023, the USD
denominated VSLs, both new and existing, will have one uniform pricing based on
the combined LIBOR and SOFR funding pool. A weighted average funding spread
based on the average SOFR funding spread and LIBOR funding spread (adjusted
using the LIBOR-SOFR spread) will be calculated. The pricing will be based on
SOFR, plus a spread to account for IBRD’s average funding spread.
(iii) At the end of the transition period, the cost-pass-through principle will remain
based on a spread over SOFR, as the legacy LIBOR funding will have all switched
to SOFR at that time.

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26. What will be the guiding principles of pricing during the transition period for the VSL
denominated in EUR, GBP, JPY?
IBRD loan portfolio has limited exposure to GBP and JPY and as a result the spread over
SONIA and TONA, respectively, will be derived from the spread over SOFR. Given the
fundamental difference between EURIBOR and SOFR, whereby EURIBOR is not secured and
has a credit premium component, the pool of VSL denominated in EUR 9 will have its own
pricing based on the cost-pass through principle of IBRD in EUR instead of the current practice
of averaging the overall funding cost that combines all currencies together. Therefore, EUR-
denominated VSL will have a different spread over EURIBOR than the spread of USD, GBP
and JPY denominated VSL over their respective new reference rates. Since the EUR funding
spread is currently considerably lower than the USD funding spread, this separation of the
EUR pool may cause an initial fluctuation in the EUR lending rate in January 2022 (i.e. a
decrease in the interest rate charged to EUR loans).

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27. How will the loan pricing structure work during the transition period for VSL?
The cost-pass through formula during the transition period will follow the same pricing as of
today, which consists of:
(i) A reference rate index
(ii) A spread over the reference rate index based on the relevant IBRD average funding
spread, adjusted for the new reference rate (see below)
(iii) The standard contractual lending spread
(iv) The applicable maturity premium

9 accounts for approximately 20% of IBRD’s loan portfolio.

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 Any applicable interest waivers will continue to apply.

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28. How will the loan pricing structure work after the transition period for VSL?
The cost-pass through formula after the transition period will follow the same pricing as of
today, which consists of:
(i) A reference rate index
(ii) A spread over the reference rate index based on the relevant IBRD average funding
spread
(iii) The standard contractual lending spread
(iv) The applicable maturity premium.

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29. How will the pricing work after the transition to the alternative reference rates for FSL?
The World Bank suspended the offering of new FSL on April 1, 2021.

The World Bank will switch the existing LIBOR-based FSL denominated in GBP, JPY, and
EUR on January 1, 2022:
• For EUR LIBOR loans, the new reference rate will be EURIBOR.
• For GBP and JPY loans, the new reference rates will be SONIA and TONA,
respectively. The pricing will be calculated based on the ISDA IBOR Fallback
Supplement and Protocol recommendation to adjust GBP and JPY LIBOR with respect
to SONIA and TONA.

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 • The fixed spread for the FSLs will continue to apply as set forth in the loan agreements
at signing (or, at conversion, if a VSL was spread-fixed after the loan agreement
signing).
• The contractual lending spread, maturity premium, if any, and any applicable interest
waivers will continue to apply.

The World Bank will switch the existing LIBOR-based FSL denominated in USD on July 1,
2023, and the pricing will be calculated based on the ISDA Fallback Protocol recommendation
to adjust USD LIBOR to SOFR. Similarly, the fixed spread, contractual lending spread,
maturity premium and applicable interest waivers, if any, will continue to apply.

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30. NEW (Dec 2021) When will the World Bank announce the applicable spreads based on
the new alternative reference rates?

The loan pricing based on the new reference rates, including the applicable spreads, will be
available on the World Bank Treasury website by the end of January 2022.

The announcement of the spreads will continue to be published later in the month after each
quarter end (i.e., January, April, July, and October).

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31. What will be the transition process to the new reference rates for LIBOR-based VSL with
a pre-existing conversion for fixing the reference rate against LIBOR? What about any
other existing conversions on the loan terms?
The transition process will be similar to the transition process of VSL, and the principle of
passing through the IBRD funding cost to borrowers will remain. However, the existing
conversion terms will continue to apply post switch-over.

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32. What will be the transition process to the new reference rates for LIBOR-based VSL with
a pre-existing conversion to fix the spread component of the loan?
The transition process for these loans will be similar to the transition process for the existing
FSL (refer to Question 23).

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33. Will the conversion provisions in the IBRD Flexible Loan (interest rate and currency
conversions) remain available after the World Bank transitions out of the LIBOR?
These conversion features will continue after the World Bank transitions to the new reference
rates, based on the World Bank’s ability to intermediate such conversions.

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34. How will the transition process work for IDA loans?
IDA provides grants, concessional and non-concessional loans to IDA countries. IDA
concessional loans have fixed interest rates and are not subject to the LIBOR transition. IDA
non-concessional loans are governed by IBRD pricing terms and will follow the same
transition process as IBRD loans.

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35. Updated (Dec 2021) Will there be any changes to borrowers’ current billing cycle after
the World Bank transitions to the new reference rates?
The current billing practice of invoicing borrowers 60 calendar days in advance of the billing
due date will be maintained. The new SOFR reference rates are backward-looking, as opposed
to LIBOR’s forward-looking term rates. Therefore, to enable the Bank to continue billing
clients 60 calendar days prior to the due date, the actual observed SOFR rates from the fourth
month (of the six-month billing period) will be used to compute the amount to be billed for the
last 60 days of the billing cycle. The interest calculation related to months 5 & 6 represents a
preliminary calculation to preserve the ability to send the invoice 60 calendar days in advance
of the due date. Once the actual SOFR rates for months 5 & 6 are observed in the market, this
preliminary calculation will be subsequently adjusted in the next billing cycle to reflect the
actual historical SOFR reference rate.

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36. NEW (Dec 2021) Will borrowers be able to estimate their total lending rate? If so, when
can they estimate or see the total lending rate?

For loans that use EURIBOR as a reference rate, which is a forward-looking interest rate set
and known in advance, borrowers will be able to estimate their total lending rate when the
applicable spread information becomes available.

For loans that use SOFR, SONIA or TONA as a reference rate, which are backward-looking
daily interest rates, the total lending rate can be estimated by sourcing daily compounded rates
(published by the regulators) on the respective periods.

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 Borrowers are reminded that they will continue to receive their billing statements 60 calendar
days in advance of the due date and that they will continue to see the lending rate applicable
to the period in their billing statements (refer to Question 35).

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37. Updated (Dec 2021) Where can I obtain more information and who in the World Bank
can be contacted regarding the LIBOR transition?

In November 2021, the World Bank updated its interactive LIBOR Transition e-learning
course. The updated course “The End of LIBOR” is comprised of three separate modules: 1.
Overview of LIBOR Transition, with information on the World Bank's preparations for the
transition; 2. Impact on IBRD Flexible Loan and 3. Impact on Billing and is designed to
provide important information and details that can help answer borrowers’ questions.

Borrowers are highly encouraged to take the course and if they still have questions, they can
reach out to the following bankers and teams:

Treasury
Ghislain Yanou ([email protected]),
Miguel Navarro-Martin ([email protected]);

Finance & Accounting

Michael Ochieng ([email protected])
David Tan ([email protected]).

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