The Municipal Finance Facility is an initiative of the EBRD and the European
Commission to develop and stimulate commercial bank lending to small and
medium-sized municipalities and their utility companies (SMMs) in EU Accession
countries joining the EU in 2004. This includes Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Poland,
Slovak Republic and Slovenia with Bulgaria and Romania to follow.
The facility combines EBRD finance in the form of long-term loans and/or risk
sharing with EU Phare grant support in the form of a maturity enhancement fee
and technical cooperation for partner banks and/or SMMs.
Objectives
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Stimulate willingness of banks to lend to SMMs.
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Enhance abilities of banks to assess risks of SMMs and to manage their loans
in the sector.
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Provide SMMs with access to medium and long-term financing.
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Assist SMMs to prepare and implement feasible and financially sound
infrastructure investments suitable for credit financing.
Facilities
Loans
The EBRD will provide up to €75 million in long-term
lines of credit from 10 - 15 years to partner banks for on-lending to SMMs in
EUR or local currency. Loan amounts are €10 - 20 million per bank. Pricing
reflects the credit risk of the partner bank.
Partner banks make loans up to €5 million with a maturity of 5 - 15 years
available to SMMs for investment in infrastructure.
Risk sharing
The EBRD will provide up to €25 million for risk
sharing on up to 35% of the partner bank's risk on a portfolio of loans to
SMMs. The EBRD's support acts like a guarantee, and the EBRD will provide
funding only in the event that a municipal loan defaults. The EBRD receives a
pro rata share of the margin for the portion of the loan made by the partner
bank. This reflects the risk the EBRD is taking. The EBRD pays an agency fee
to the partner bank to off-set loan processing costs.
Maturity enhancement fee
To encourage longer-term lending, the
EU provides a maturity enhancement fee to partner banks. The fee is paid on a
good faith basis at a rate depending on the tenor of the loan. In the event of
loan cancellation, prepayment or default within 5 years, partner banks are
required to repay the fee in full.
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Loan tenor
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Maturity enhancement fee
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6-7 years
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Up to 100 bps
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8-9 years
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Up to 200 bps
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10-11 years
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Up to 300 bps
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12-13 years
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Up to 400 bps
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14-15 years
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Up to 500 bps
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bps = basis points
Technical cooperation
For banks
EU funds provide short-term technical cooperation to
banks to upgrade their capacity to appraise municipal infrastructure projects,
assess risks and manage portfolios.
The EBRD makes municipal finance experts available to partner banks if
requested to help establish specialised municipal finance units and to assist
in developing lending practices of partner banks to the sector. This can
include training of loan officers and credit personnel and preparing/adapting
lending manuals.
For municipalities
EU funds provide support for project
preparation, loan application and project implementation by SMMs. In addition,
technical cooperation may include creditworthiness support, support for tariff
changes or support to revenue enhancement/cost control in utility companies.
Support for project preparation is only available upon confirmation by the
partner bank to the EBRD that it has initiated due diligence on that
municipality and is considering financing a project. Implementation support is
only provided in relation to local loans financed.
Selection criteria
For banks
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Creditworthiness.
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Demonstrated commitment to extend long-term financing to SMMs.
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Commitment to promote the facility to SMMs.
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Acceptable standards of procedure for municipal credit appraisal.
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Willingness to co-operate with the EBRD regarding technical cooperation
support.
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Willingness to provide visibility for the EU through means such as press
conferences and featuring the EU logo in marketing materials and public events.
For municipalities
Municipalities should serve a population of
under 100,000 people, or for Bulgaria and Romania, under 150,000 people. They
should have sound financial management and a good cash flow. Investments can
be in infrastructure sectors such as local transport, district heating, water
supply, sewerage, solid waste management, public roads and parking.
Procurement rules for contracts
Partner banks are required to monitor that procurement is carried out on the
basis of:
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Works contracts below €5 million: National procurement regulations, but no
domestic preference should be applied.
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Works contracts above €5 million: EBRD open tender procedures.
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Goods contracts below €200,000: National procurement regulations, but no
domestic preference should be applied.
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Goods contracts above €200,000: EBRD open tender procedures.
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Services contracts above €200,000: EBRD public procurement procedures.
Complete EBRD procurement policies
and rules.
Procurement complaints should be reported to the EBRD.
Environmental requirements
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Investments must comply with national and EU environmental standards.
Financing agreements and loan documentation should confirm the borrower's
compliance.
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The partner bank is required to carry out environmental due diligence on
proposed investments.
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The partner bank should confirm to the EBRD that it has reviewed the
borrower's preparation work to verify that the project is structured to meet
national and EU environmental standards
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Environmental impacts of projects should be reported to partner banks, who in
turn report to the EBRD.
