TIDM42BI
RNS Number : 4678N
Inter-American Development Bank
20 January 2023
PRICING SUPPLEMENT
Inter-American Development Bank
Global Debt Program
Series No.: 827
Tranche No.: 6
USD100,000,000 Floating Rate Notes due April 12, 2027 (the
"Notes") as from January 20, 2023, to be consolidated and form a
single series with the Bank's
USD1,000,000,000 Floating Rate Notes due April 12, 2027, issued
on April 12, 2022 (the "Series 827 Tranche 1 Notes"), the Bank's
USD100,000,000 Floating Rate Notes due April 12, 2027, issued on
May 17, 2022 (the "Series 827 Tranche 2 Notes"), the Bank's
USD100,000,000 Floating Rate Notes due April 12, 2027, issued on
May 24, 2022 (the "Series 827 Tranche 3 Notes"), the Bank's
USD100,000,000 Floating Rate Notes due April 12, 2027, issued on
November 10, 2022 (the "Series 827 Tranche 4 Notes") and the Bank's
USD100,000,000 Floating Rate Notes due April 12, 2027, issued on
November 16, 2022 (the "Series 827 Tranche 5 Notes")
Issue Price: 99.773 percent plus 8 days' accrued interest
Application has been made for the Notes to be admitted to
the
Official List of the Financial Conduct Authority and
to trading on the London Stock Exchange plc's
UK Regulated Market
Deutsche Bank
The date of this Pricing Supplement is January 18, 2023.
Terms used herein shall be deemed to be defined as such for the
purposes of the Terms and Conditions (the "Conditions") set forth
in the Prospectus dated July 28, 2020 (the "Prospectus") (which for
the avoidance of doubt does not constitute a prospectus for the
purposes of Part VI of the United Kingdom ("UK") Financial Services
and Markets Act 2000 or a base prospectus for the purposes of
Regulation (EU) 2017/1129 (as amended, the "Prospectus Regulation")
or the Prospectus Regulation as it forms part of UK domestic law by
virtue of the European Union (Withdrawal) Act 2018 ("EUWA")). This
Pricing Supplement must be read in conjunction with the Prospectus.
This document is issued to give details of an issue by the
Inter-American Development Bank (the "Bank") under its Global Debt
Program and to provide information supplemental to the Prospectus.
Complete information in respect of the Bank and this offer of the
Notes is only available on the basis of the combination of this
Pricing Supplement and the Prospectus.
MiFID II and UK MiFIR product governance / Retail investors,
professional investors and ECPs target market - See "General
Information-Additional Information Regarding the Notes-Matters
relating to MiFID II and UK MiFIR " below.
Terms and Conditions
The following items under this heading "Terms and Conditions"
are the particular terms which relate to the issue the subject of
this Pricing Supplement. Together with the applicable Conditions
(as defined above), which are expressly incorporated hereto, these
are the only terms that form part of the form of Notes for such
issue.
1. Series No.: 827
Tranche No.: 6
2. Aggregate Principal Amount: USD100,000,000
As from the Issue Date, the Notes
will be consolidated and form a
single series with the Series 827
Tranche 1 Notes, the Series 827
Tranche 2 Notes, the Series 827
Tranche 3 Notes, the Series 827
Tranche 4 Notes, and the Series
827 Tranche 5 Notes.
3. Issue Price: USD99,875,000, which amount represents
the sum of (a) 99.773 percent of
the Aggregate Principal Amount plus
(b) the amount of USD102,000, representing
8 days' accrued interest, inclusive.
4. Issue Date: January 20, 2023
5. Form of Notes
(Condition 1(a)): Book-entry only
6. Authorized Denomination(s)
(Condition 1(b)): USD1,000 and integral multiples
thereof
7. Specified Currency
(Condition 1(d)): United States Dollars (USD) being
the lawful currency of the United
States of America
8. Specified Principal Payment
Currency
(Conditions 1(d) and USD
7(h)):
9. Specified Interest Payment
Currency
(Conditions 1(d) and
7(h)): USD
10. Maturity Date
(Condition 6(a)): April 12, 2027
11. Interest Basis
(Condition 5): Floating Interest Rate (Condition
5(II))
12. Interest Commencement
Date January 12, 2023
(Condition 5(III)) :
13. Floating Rate (Condition
5(II)):
(a) Calculation Amount Not Applicable
(if different than Principal
Amount of the Note):
(b) Business Day Convention: Following Business Day Convention
(c) Specified Interest The period beginning on, and including,
Period: the Interest Commencement Date (the
Issue Date) to, but excluding, the
first Interest Payment Date and
each successive period beginning
on, and including, an Interest Payment
Date to, but excluding, the next
succeeding Interest Payment Date,
in each case, as adjusted in accordance
with the relevant Business Day Convention.
(d) Interest Payment Quarterly in arrear on January 12,
Date: April 12, July 12 and October 12
in each year, commencing on April
12, 2023, up to and including the
Maturity Date.
Each Interest Payment Date is subject
to adjustment in accordance with
the Business Day Convention (but,
with respect to the Maturity Date,
with no adjustment to the amount
of interest otherwise calculated).
(e) Interest Period Date: Each Interest Payment Date
(f) Reference Rate: Subject to the Compounded SOFR Fallback
Provisions below, for any Interest
Period, "Compounded SOFR" will be
calculated by the Calculation Agent
on each Interest Determination Date
as follows and the resulting percentage
will be rounded, if necessary, to
the fourth decimal place of a percentage
point, 0.00005 being rounded upwards:
where:
"Observation Period" means, in respect
of each Interest Period, the period
from, and including, the date which
is five U.S. Government Securities
Business Days preceding the first
date of such Interest Period to,
but excluding, the date which is
five U.S. Government Securities
Business Days preceding the Interest
Payment Date for such Interest Period
(or in the final Interest Period,
the Maturity Date).
"SOFR Index(Start) " means the SOFR
Index value on the day which is
five U.S. Government Securities
Business Days preceding the first
date of the relevant Interest Period.
"SOFR Index(End) " means the SOFR
Index value on the day which is
five U.S. Government Securities
Business Days preceding the Interest
Payment Date relating to such Interest
Period (or in the final Interest
Period, the Maturity Date).
"d(c) " means the number of calendar
days in the Observation Period relating
to such Interest Period.
"SOFR Administrator" means the Federal
Reserve Bank of New York ("NY Fed")
as administrator of the secured
overnight financing rate ("SOFR")
(or a successor administrator of
SOFR)
"SOFR Index" in relation to any
U.S. Government Securities Business
Day shall be the value published
by the SOFR Administrator on its
website (on or about 3:00 p.m. (New
York Time) on such U.S. Government
Securities Business Day (the "SOFR
Index Determination Time"). Currently,
the SOFR Administrator publishes
the SOFR Index on its website at
https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind
. In the event that the value originally
published by the SOFR Administrator
on or about 3:00 p.m. (New York
Time) on any U.S. Government Securities
Business Day is subsequently corrected
and such corrected value is published
by the SOFR Administrator on the
original date of publication, then
such corrected value, instead of
the value that was originally published,
shall be deemed the SOFR Index as
of the SOFR Index Determination
Time in relation to such U.S. Government
Securities Business Day.
Compounded SOFR Fallback Provisions
:
SOFR Index Unavailable :
If a SOFR Index(Start) or SOFR Index(End)
is not published on the associated
Interest Determination Date and
a Benchmark Transition Event and
its related Benchmark Replacement
Date have not occurred with respect
to SOFR Index or SOFR, "Compounded
SOFR" means, for the applicable
Interest Period for which such index
is not available, the rate of return
on a daily compounded interest investment
calculated by the Calculation Agent
in accordance with the formula for
SOFR Averages, and definitions required
for such formula, published on the
SOFR Administrator's website at
https://www.newyorkfed.org/markets/treasury-repo-reference-rates-inform
ation.
For the purposes of this provision,
references in the SOFR Averages
compounding formula and related
definitions to "calculation period"
shall be replaced with "Observation
Period" and the words "that is,
30-, 90-, or 180- calendar days"
shall be removed. If the daily SOFR
("SOFR(i) ") does not so appear
for any day, "i" in the Observation
Period, SOFR(i) for such day "i"
shall be SOFR published in respect
of the first preceding U.S. Government
Securities Business Day for which
SOFR was published on the SOFR Administrator's
website.
Effect of a Benchmark Transition
Event :
If the Issuer determines on or prior
to the relevant Reference Time that
a Benchmark Transition Event and
its related Benchmark Replacement
Date have occurred with respect
to the then-current Benchmark, the
Benchmark Replacement will replace
the then-current Benchmark for all
purposes relating to the Notes in
respect of all determinations on
such date and for all determinations
on all subsequent dates.
In connection with the implementation
of a Benchmark Replacement, the
Issuer will have the right to make
Benchmark Replacement Conforming
Changes from time to time.
Any determination, decision or election
that may be made by the Issuer pursuant
to this section, including any determination
with respect to a tenor, rate or
adjustment or of the occurrence
or non-occurrence of an event, circumstance
or date and any decision to take
or refrain from taking any action
or any selection:
(1) will be conclusive and binding
absent manifest error;
(2) will be made in the sole discretion
of the Issuer; and
(3) notwithstanding anything to
the contrary in the documentation
relating to the Notes described
herein, shall become effective without
consent from the holders of the
Notes or any other party.
"Benchmark" means, initially, SOFR
Index; provided that if the Issuer
determines on or prior to the Reference
Time that a Benchmark Transition
Event and its related Benchmark
Replacement Date have occurred with
respect to SOFR Index (or the published
daily SOFR used in the calculation
thereof) then "Benchmark" means
the applicable Benchmark Replacement
for the SOFR Index; and provided
further that if the Issuer determines
on or prior to the Reference Time
that a Benchmark Transition Event
and its related Benchmark Replacement
Date have occurred with respect
to the then-current Benchmark (or
the daily published component used
in the calculation thereof), then
"Benchmark" means the applicable
Benchmark Replacement for the then-current
Benchmark.
"Benchmark Replacement" means the
first alternative set forth in the
order below that can be determined
by the Issuer as of the Benchmark
Replacement Date.
(1) the sum of: (a) the alternate
rate of interest that has been selected
or recommended by the Relevant Governmental
Body as the replacement for the
then-current Benchmark and (b) the
Benchmark Replacement Adjustment;
(2) the sum of: (a) the ISDA Fallback
Rate and (b) the Benchmark Replacement
Adjustment; or
(3) the sum of: (a) the alternate
rate of interest that has been selected
by the Issuer as the replacement
for the then-current Benchmark giving
due consideration to any industry-accepted
rate of interest as a replacement
for the then-current Benchmark for
U.S. dollar-denominated floating
rate notes at such time and (b)
the Benchmark Replacement Adjustment;
Provided that, if a Benchmark Replacement
Date has occurred with regard to
the daily published component used
in the calculation of a Benchmark,
but not with regard to the Benchmark
itself, "Benchmark Replacement"
means the references to the alternatives
determined in accordance with clauses
(1), (2) or (3) above for such daily
published components.
"Benchmark Replacement Adjustment"
means the first alternative set
forth in the order below that can
be determined by the Issuer as of
the Benchmark Replacement Date:
(1) the spread adjustment, or method
for calculating or determining such
spread adjustment, (which may be
a positive or negative value or
zero) that has been selected or
recommended by the Relevant Governmental
Body for the applicable Unadjusted
Benchmark Replacement;
(2) if the applicable Unadjusted
Benchmark Replacement is equivalent
to the ISDA Fallback Rate, the ISDA
Fallback Adjustment; or
(3) the spread adjustment (which
may be a positive or negative value
or zero) that has been selected
by the Issuer giving due consideration
to any industry-accepted spread
adjustment, or method for calculating
or determining such spread adjustment,
for the replacement of the then-current
Benchmark (or the daily published
component used in the calculation
thereof) with the applicable Unadjusted
Benchmark Replacement for U.S. dollar-denominated
floating rate notes at such time.
"Benchmark Replacement Conforming
Changes" means, with respect to
any Benchmark Replacement, any technical,
administrative or operational changes
(including changes to the timing
and frequency of determining rates
and making payments of interest,
rounding of amounts or tenors, and
other administrative matters) that
the Issuer decides may be appropriate
to reflect the adoption of such
Benchmark Replacement in a manner
substantially consistent with market
practice (or, if the Issuer decides
that adoption of any portion of
such market practice is not administratively
feasible or if the Issuer determines
that no market practice for use
of the Benchmark Replacement exists,
in such other manner as the Issuer
determines is reasonably necessary);
provided that, for the avoidance
of doubt, if a Benchmark Replacement
Date has occurred with regard to
the daily published component used
in the calculation of a Benchmark,
but not with regard to the Benchmark
itself, "Benchmark Replacement Conforming
Changes" shall also mean that the
Issuer may calculate the Benchmark
Replacement for such Benchmark in
accordance with the formula for
and method of calculating such Benchmark
last in effect prior to Benchmark
Replacement Date affecting such
component, substituting the affected
component with the relevant Benchmark
Replacement for such component.
"Benchmark Replacement Date" means
the earliest to occur of the following
events with respect to the then-current
Benchmark (or the daily published
component used in the calculation
thereof):
(1) in the case of clause (1) or
(2) of the definition of "Benchmark
Transition Event," the later of
(a) the date of the public statement
or publication of information referenced
therein and (b) the date on which
the administrator of the Benchmark
permanently or indefinitely ceases
to provide the Benchmark (or such
component); or
(2) in the case of clause (3) of
the definition of "Benchmark Transition
Event," the later of (x) the date
of the public statement or publication
of information referenced therein
and (y) the first date on which
such Benchmark (or such component)
is no longer representative per
such statement or publication.
For the avoidance of doubt, if the
event that gives rise to the Benchmark
Replacement Date occurs on the same
day as, but earlier than, the Reference
Time in respect of any determination,
the Benchmark Replacement Date will
be deemed to have occurred prior
to the Reference Time for such determination.
"Benchmark Transition Event" means
the occurrence of one or more of
the following events with respect
to the then-current Benchmark (or
the daily published component used
in the calculation thereof):
(1) a public statement or publication
of information by or on behalf of
the administrator of the Benchmark
(or such component) announcing that
such administrator has ceased or
will cease to provide the Benchmark
(or such component), permanently
or indefinitely, provided that,
at the time of such statement or
publication, there is no successor
administrator that will continue
to provide the Benchmark (or such
component); or
(2) a public statement or publication
of information by the regulatory
supervisor for the administrator
of the Benchmark (or such component),
the central bank for the currency
of the Benchmark (or such component),
an insolvency official with jurisdiction
over the administrator for the Benchmark
(or such component), a resolution
authority with jurisdiction over
the administrator for the Benchmark
(or such component) or a court or
an entity with similar insolvency
or resolution authority over the
administrator for the Benchmark,
which states that the administrator
of the Benchmark (or such component)
has ceased or will cease to provide
the Benchmark (or such component)
permanently or indefinitely, provided
that, at the time of such statement
or publication, there is no successor
administrator that will continue
to provide the Benchmark (or such
component); or
(3) a public statement or publication
of information by the regulatory
supervisor for the administrator
of the Benchmark announcing (A)
that such Benchmark (or its component)
is no longer, or as of a specified
future date will no longer be, capable
of being representative, or is non-representative,
of the underlying market and economic
reality that such Benchmark (or
its component) is intended to measure
as required by applicable law or
regulation and as determined by
the regulatory supervisor in accordance
with applicable law or regulation
and (B) that the intention of that
statement or publication is to engage
contractual triggers for fallbacks
activated by pre-cessation announcements
by such supervisor (howsoever described)
in contracts.
"ISDA Definitions" means the 2006
ISDA Definitions published by the
International Swaps and Derivatives
Association, Inc. or any successor
thereto, as amended or supplemented
from time to time, or any successor
definitional booklet for interest
rate derivatives published from
time to time.
"ISDA Fallback Adjustment" means
the spread adjustment (which may
be a positive or negative value
or zero) that would apply for derivatives
transactions referencing the ISDA
Definitions to be determined upon
the occurrence of an index cessation
event with respect to the Benchmark
(or the daily published component
used in the calculation thereof).
"ISDA Fallback Rate" means the rate
that would apply for derivatives
transactions referencing the ISDA
Definitions to be effective upon
the occurrence of an index cessation
date with respect to the Benchmark
(or the daily published component
used in the calculation thereof)
for the applicable tenor excluding
the applicable ISDA Fallback Adjustment.
"Reference Time" with respect to
any determination of the Benchmark
(or the daily published component
used in the calculation thereof)
means (1) if the Benchmark is SOFR
Index, the SOFR Index Determination
Time, and (2) if the Benchmark is
not SOFR Index, the time determined
by the Issuer after giving effect
to the Benchmark Replacement Conforming
Changes.
"Relevant Governmental Body" means
the Federal Reserve Board and/or
the Federal Reserve Bank of New
York, or a committee officially
endorsed or convened by the Federal
Reserve Board and/or the Federal
Reserve Bank of New York or any
successor thereto.
"Unadjusted Benchmark Replacement"
means the Benchmark Replacement
excluding the Benchmark Replacement
Adjustment.
(g) Calculation Agent: Citibank, N.A., London Branch
(h) Interest Determination
Date: The date five U.S. Government Securities
Business Days prior to the end of
each Interest Period.
14. Other Floating Rate Terms
(Conditions 5(II) and
(III)):
(a) Minimum Interest 0 percent per annum
Rate:
(b) Spread: plus (+) 0.28 percent per annum
(c) Floating Rate Day
Count Fraction if not
actual/360: Actual/360
(d) Relevant Banking
Center: New York
15. Relevant Financial Center: New York
16. Relevant Business Day: A day which is a U.S. Government
Securities Business Day and a New
York Business Day.
17. Issuer's Optional Redemption
(Condition 6(e)): No
18. Redemption at the Option
of the Noteholders (Condition No
6(f)):
19. Early Redemption Amount
(including accrued interest,
if applicable) (Condition In the event the Notes become due
9): and payable as provided in Condition
9 (Default), the Early Redemption
Amount with respect to the minimum
Authorized Denomination will be
USD1,000 plus accrued interest,
if any, as determined in accordance
with "13. Floating Rate (Condition
5(II)) and "14. Other Floating Rate
Terms (Conditions 5(II) and (III)).
20. Governing Law: New York
Other Relevant Terms
1. Listing (if yes, specify
Stock Application has been made for the
Exchange): Notes to be admitted to the Official
List of the Financial Conduct Authority
and to trading on the London Stock
Exchange plc's UK Regulated Market
2. Details of Clearance
System Approved by the
Bank and the
Global Agent and Clearance
and Federal Reserve Bank of New York;
Settlement Procedures: Euroclear Bank SA/NV; Clearstream
Banking S.A.
3. Syndicated: No
4. Commissions and Concessions: 0.007% of the Aggregate Principal
Amount
5. Estimated Total Expenses: The Dealer has agreed to pay for
all material expenses related to
the issuance of the Notes, except
the Issuer will pay for the London
Stock Exchange listing fees, if
applicable.
6. Codes:
(a) Common Code: 246943532
(b) ISIN: US4581X0ED60
(c) CUSIP: 4581X0ED6
7. Identity of Dealer: Deutsche Bank AG, London Branch
8. Additional Risk Factors: As set forth in the Supplemental
Prospectus Information
9. Selling Restrictions:
(a) United States: Under the provisions of Section
11(a) of the Inter-American Development
Bank Act, the Notes are exempted
securities within the meaning of
Section 3(a)(2) of the U.S. Securities
Act of 1933, as amended, and Section
3(a)(12) of the U.S. Securities
Exchange Act of 1934, as amended.
(b) United Kingdom: The Dealer represents and agrees
that (a) it has only communicated
or caused to be communicated and
will only communicate or cause to
be communicated an invitation or
inducement to engage in investment
activity (within the meaning of
Section 21 of the Financial Services
and Markets Act 2000 (the "FSMA"))
received by it in connection with
the issue or sale of the Notes in
circumstances in which Section 21(1)
of the FSMA does not apply to the
Bank, and (b) it has complied and
will comply with all applicable
provisions of the FSMA with respect
to anything done by it in relation
to such Notes in, from or otherwise
involving the UK.
(c) Singapore: In the case of the Notes being offered
into Singapore in a primary or subsequent
distribution, and solely for the
purposes of its obligations pursuant
to Section 309B of the Securities
and Futures Act (Chapter 289) of
Singapore (the "SFA"), the Issuer
has determined, and hereby notifies
all relevant persons (as defined
in Section 309A of the SFA) that
the Notes are "prescribed capital
markets products" (as defined in
the Securities and Futures (Capital
Markets Products) Regulations 2018
of Singapore) and Excluded Investment
Products (as defined in MAS Notice
SFA 04-N12: Notice on the Sale of
Investment Products and MAS Notice
FAA-N16: Notice on Recommendations
on Investment Products).
(d) General: No action has been or will be taken
by the Issuer that would permit
a public offering of the Notes,
or possession or distribution of
any offering material relating to
the Notes in any jurisdiction where
action for that purpose is required.
Accordingly, the Dealer agrees that
it will observe all applicable provisions
of law in each jurisdiction in or
from which it may offer or sell
Notes or distribute any offering
material.
General Information
Recent Developments
On November 20, 2022, Ilan Goldfajn was elected president of the
Bank during a Special Meeting of the Bank's Board of Governors. Mr.
Goldfajn took office for a five-year term on December 19, 2022.
Additional Information Regarding the Notes
1. Matters relating to MiFID II and UK MiFIR
The Bank does not fall under the scope of application of either
the MiFID II or the UK MiFIR regime. Consequently, the Bank does
not qualify as an "investment firm", "manufacturer" or
"distributor" for the purposes of MiFID II or UK MiFIR.
MiFID II product governance / Retail investors, professional
investors and ECPs target market - Solely for the purposes of the
EU manufacturer's product approval process, the target market
assessment in respect of the Notes has led to the conclusion that:
(i) the target market for the Notes is eligible counterparties,
professional clients and retail clients, each as defined in MiFID
II; and (ii) all channels for distribution of the Notes are
appropriate. Any person subsequently offering, selling or
recommending the Notes (a "distributor") should take into
consideration the EU manufacturer's target market assessment;
however, a distributor subject to MiFID II is responsible for
undertaking its own target market assessment in respect of the
Notes (by either adopting or refining the EU manufacturer's target
market assessment) and determining appropriate distribution
channels.
For the purposes of this provision, the expression "EU
manufacturer" means the Dealer and the expression "MiFID II" means
Directive 2014/65/EU, as amended.
UK MiFIR product governance / Retail investors, professional
investors and ECPs target market - Solely for the purposes of the
UK manufacturer's product approval process, the target market
assessment in respect of the Notes has led to the conclusion that:
(i) the target market for the Notes is retail clients, as defined
in point (8) of Article 2 of Regulation (EU) No 2017/565 as it
forms part of UK domestic law by virtue of the EUWA, eligible
counterparties, as defined in COBS, and professional clients, as
defined in UK MiFIR; and (ii) all channels for distribution of the
Notes are appropriate. Any person subsequently offering, selling or
recommending the Notes (a "distributor") should take into
consideration the UK manufacturer's target market assessment;
however, a distributor subject to the UK MiFIR Product Governance
Rules is responsible for undertaking its own target market
assessment in respect of the Notes (by either adopting or refining
the UK manufacturer's target market assessment) and determining
appropriate distribution channels.
For the purposes of this provision, (i) the expression "UK
manufacturer" means the Dealer, (ii) the expression "COBS" means
the FCA Handbook Conduct of Business Sourcebook, (iii) the
expression "UK MiFIR" means Regulation (EU) No 600/2014 as it forms
part of UK domestic law by virtue of the EUWA and (iv) the
expression "UK MiFIR Product Governance Rules" means the FCA
Handbook Product Intervention and Product Governance
Sourcebook.
2. Supplemental Prospectus Information
The Prospectus is hereby supplemented with the following
information, which shall be deemed to be incorporated in, and to
form part of, the Prospectus.
The Prospectus and this Pricing Supplement do not describe all
of the risks and other ramifications of an investment in the Notes.
An investment in the Notes entails risks not associated with an
investment in a conventional fixed rate or floating rate debt
security. Investors should consult their own financial and legal
advisors about the risks associated with an investment in the Notes
and the suitability of investing in the Notes in light of their
particular circumstances, and possible scenarios for economic,
interest rate and other factors that may affect their investment
.
The Secured Overnight Financing Rate is a Relatively New
Reference Rate and its Composition and Characteristics are Not the
Same as LIBOR.
On June 22, 2017, the Alternative Reference Rates Committee
("ARRC") convened by the Board of Governors of the Federal Reserve
System and the Federal Reserve Bank of New York identified the
Secured Overnight Financing Rate ("SOFR") as the rate that, in the
consensus view of the ARRC, represented best practice for use in
certain new U.S. dollar derivatives and other financial contracts.
SOFR is a broad measure of the cost of borrowing cash overnight
collateralized by U.S. treasury securities, and has been published
by the Federal Reserve Bank of New York since April 2018. The
Federal Reserve Bank of New York has also begun publishing
historical indicative SOFR from 2014. Investors should not rely on
any historical changes or trends in SOFR as an indicator of future
changes in SOFR.
The composition and characteristics of SOFR are not the same as
those of LIBOR, and SOFR is fundamentally different from LIBOR for
two key reasons. First, SOFR is a secured rate, while LIBOR is an
unsecured rate. Second, SOFR is an overnight rate, while LIBOR is a
forward-looking rate that represents interbank funding over
different maturities (e.g., three months). As a result, there can
be no assurance that SOFR (including Compounded SOFR) will perform
in the same way as LIBOR would have at any time, including, without
limitation, as a result of changes in interest and yield rates in
the market, market volatility or global or regional economic,
financial, political, regulatory, judicial or other events.
SOFR May be More Volatile Than Other Benchmark or Market
Rates.
Since the initial publication of SOFR, daily changes in SOFR
have, on occasion, been more volatile than daily changes in other
benchmark or market rates, such as USD LIBOR. Although changes in
Compounded SOFR generally are not expected to be as volatile as
changes in daily levels of SOFR, the return on and value of the
Notes may fluctuate more than floating rate securities that are
linked to less volatile rates. In addition, the volatility of SOFR
has reflected the underlying volatility of the overnight U.S.
Treasury repo market. The Federal Reserve Bank of New York has at
times conducted operations in the overnight U.S. Treasury repo
market in order to help maintain the federal funds rate within a
target range. There can be no assurance that the Federal Reserve
Bank of New York will continue to conduct such operations in the
future, and the duration and extent of any such operations is
inherently uncertain. The effect of any such operations, or of the
cessation of such operations to the extent they are commenced, is
uncertain and could be materially adverse to investors in the
Notes.
Any Failure of SOFR to Gain Market Acceptance Could Adversely
Affect the Notes.
According to the ARRC, SOFR was developed for use in certain
U.S. dollar derivatives and other financial contracts as an
alternative to USD LIBOR in part because it is considered a good
representation of general funding conditions in the overnight U.S.
Treasury repurchase agreement market. However, as a rate based on
transactions secured by U.S. Treasury securities, it does not
measure bank-specific credit risk and, as a result, is less likely
to correlate with the unsecured short-term funding costs of banks.
This may mean that market participants would not consider SOFR a
suitable replacement or successor for all of the purposes for which
USD LIBOR historically has been used (including, without
limitation, as a representation of the unsecured short-term funding
costs of banks), which may, in turn, lessen market acceptance of
SOFR. Any failure of SOFR to gain market acceptance could adversely
affect the return on and value of the Notes and the price at which
investors can sell the Notes in the secondary market.
In addition, if SOFR does not prove to be widely used as a
benchmark in securities that are similar or comparable to the
Notes, the trading price of the Notes may be lower than those of
securities that are linked to rates that are more widely used.
Similarly, market terms for floating-rate debt securities linked to
SOFR, such as the spread over the base rate reflected in interest
rate provisions or the manner of compounding the base rate, may
evolve over time, and trading prices of the Notes may be lower than
those of later-issued SOFR-based debt securities as a result.
Investors in the Notes may not be able to sell the Notes at all or
may not be able to sell the Notes at prices that will provide them
with a yield comparable to similar investments that have a
developed secondary market, and may consequently suffer from
increased pricing volatility and market risk.
The Rate of Interest on the Notes is Based on a Compounded SOFR
Rate and the SOFR Index, which is Relatively New in the
Marketplace.
For each Interest Period, the Rate of Interest on the Notes is
based on Compounded SOFR, which is calculated using the SOFR Index
published by the Federal Reserve Bank of New York according to the
specific formula described in paragraph 13 under "Terms and
Conditions" above (the "Floating Rate Note Provisions"), not the
SOFR rate published on or in respect of a particular date during
such Interest Period or an arithmetic average of SOFR rates during
such period. For this and other reasons, the Rate of Interest on
the Notes during any Interest Period will not necessarily be the
same as the Rate of Interest on other SOFR-linked investments that
use an alternative basis to determine the applicable interest rate.
Further, if the SOFR rate in respect of a particular date during an
Interest Period is negative, its contribution to the SOFR Index
will be less than one, resulting in a reduction to Compounded SOFR
used to calculate the interest payable on the Notes on the Interest
Payment Date for such Interest Period.
Very limited market precedent exists for securities that use
SOFR as the interest rate and the method for calculating an
interest rate based upon SOFR in those precedents varies. In
addition, the Federal Reserve Bank of New York only began
publishing the SOFR Index on March 2, 2020. Accordingly, the use of
the SOFR Index or the specific formula for the Compounded SOFR rate
used in the Notes may not be widely adopted by other market
participants, if at all. If the market adopts a different
calculation method, that would likely adversely affect the market
value of the Notes.
Compounded SOFR with Respect to a Particular Interest Period
Will Only be Capable of Being Determined Near the End of the
Relevant Interest Period.
The level of Compounded SOFR applicable to a particular Interest
Period and, therefore, the amount of interest payable with respect
to such Interest Period will be determined on the Interest
Determination Date for such Interest Period. Because each such date
is near the end of such Interest Period, you will not know the
amount of interest payable with respect to a particular Interest
Period until shortly prior to the related Interest Payment Date and
it may be difficult for you to reliably estimate the amount of
interest that will be payable on each such Interest Payment Date.
In addition, some investors may be unwilling or unable to trade the
Notes without changes to their information technology systems, both
of which could adversely impact the liquidity and trading price of
the Notes.
The SOFR Index May be Modified or Discontinued and the Notes May
Bear Interest by Reference to a Rate Other than Compounded SOFR,
which Could Adversely Affect the Value of the Notes.
The SOFR Index is published by the Federal Reserve Bank of New
York based on data received by it from sources other than the
Issuer, and the Issuer has no control over its methods of
calculation, publication schedule, rate revision practices or
availability of the SOFR Index at any time. There can be no
guarantee, particularly given its relatively recent introduction,
that the SOFR Index will not be discontinued or fundamentally
altered in a manner that is materially adverse to the interests of
investors in the Notes. If the manner in which the SOFR Index is
calculated, including the manner in which SOFR is calculated, is
changed, that change may result in a reduction in the amount of
interest payable on the Notes and the trading prices of the Notes.
In addition, the Federal Reserve Bank of New York may withdraw,
modify or amend the published SOFR Index or SOFR data in its sole
discretion and without notice. The Rate of Interest for any
Interest Period will not be adjusted for any modifications or
amendments to the SOFR Index or SOFR data that the Federal Reserve
Bank of New York may publish after the Rate of Interest for that
Interest Period has been determined.
If the Issuer determines that a Benchmark Transition Event and
its related Benchmark Replacement Date have occurred in respect of
the SOFR Index or SOFR itself, then the Rate of Interest on the
Notes will no longer be determined by reference to the SOFR Index,
but instead will be determined by reference to a different rate,
plus a spread adjustment, which we refer to as a "Benchmark
Replacement," as further described in the Floating Rate Note
Provisions.
If a particular Benchmark Replacement or Benchmark Replacement
Adjustment cannot be determined, then the next-available Benchmark
Replacement or Benchmark Replacement Adjustment will apply. These
replacement rates and adjustments may be selected, recommended or
formulated by (i) the Relevant Governmental Body (such as the
ARRC), (ii) the International Swaps and Derivatives Association
("ISDA") or (iii) in certain circumstances, the Issuer itself. In
addition, the terms of the Notes expressly authorize the Issuer to
make Benchmark Replacement Conforming Changes with respect to,
among other things, changes to the definition of "Interest Period",
the timing and frequency of determining rates and making payments
of interest and other administrative matters. The determination of
a Benchmark Replacement, the calculation of the Rate of Interest on
the Notes by reference to a Benchmark Replacement (including the
application of a Benchmark Replacement Adjustment), any
implementation of Benchmark Replacement Conforming Changes and any
other determinations, decisions or elections that may be made under
the terms of the Notes in connection with a Benchmark Transition
Event, could adversely affect the value of the Notes, the return on
the Notes and the price at which you can sell such Notes.
In addition, (i) the composition and characteristics of the
Benchmark Replacement will not be the same as those of Compounded
SOFR, the Benchmark Replacement may not be the economic equivalent
of Compounded SOFR, there can be no assurance that the Benchmark
Replacement will perform in the same way as Compounded SOFR would
have at any time and there is no guarantee that the Benchmark
Replacement will be a comparable substitute for Compounded SOFR
(each of which means that a Benchmark Transition Event could
adversely affect the value of the Notes, the return on the Notes
and the price at which you can sell the Notes), (ii) any failure of
the Benchmark Replacement to gain market acceptance could adversely
affect the Notes, (iii) the Benchmark Replacement may have a very
limited history and the future performance of the Benchmark
Replacement may not be predicted based on historical performance,
(iv) the secondary trading market for Notes linked to the Benchmark
Replacement may be limited and (v) the administrator of the
Benchmark Replacement may make changes that could change the value
of the Benchmark Replacement or discontinue the Benchmark
Replacement and has no obligation to consider your interests in
doing so.
The Calculation Agent Will Make Determinations with respect to
the Notes, and the Issuer May Exercise Subjective Discretion with
respect to Compounded SOFR or Replacements Thereof.
The Calculation Agent will make certain determinations with
respect to the Notes as further described under the Floating Rate
Note Provisions, some of which determinations are in the
Calculation Agent's sole discretion. Any determination, decision or
election pursuant to the benchmark replacement provisions will be
made by the Issuer. Any of these determinations may adversely
affect the value of the Notes, the return on the Notes and the
price at which you can sell such Notes. Moreover, certain
determinations to be made by the Issuer may require the exercise of
discretion and the making of subjective judgments, such as with
respect to Compounded SOFR or the occurrence or non-occurrence of a
Benchmark Transition Event and any Benchmark Replacement Conforming
Changes. These potentially subjective determinations may adversely
affect the value of the Notes, the return on the Notes and the
price at which you can sell such Notes .
INTER-AMERICAN DEVELOPMENT BANK
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