Pearse Doherty (Donegal South West, Sinn Fein)
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Question 148: To ask the Minister for Finance if he will provide details of projected future draw down of moneys from the EU/IMF programme for the remainder of 2011; the date on which such draw downs are expected to take place; the amount of these draw downs; the source of the moneys and the interest rate charged on each portion of these draw downs; and if he will make a statement on the matter. [18543/11]

Michael Noonan (Limerick City, Fine Gael)
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Future disbursements are kept under constant review and are the subject of discussion in the quarterly reviews. Disbursements in each quarter can only take place after the IMF Executive Board, the Eurogroup and ECOFIN have approved the compliance reports prepared, respectively, by IMF Staff and the European Commission Services. The actual disbursements take place in the period following the respective meetings. Disbursements from the EFSF and EFSM are somewhat dictated by the timing of their market interventions and discussions around this are held with the NTMA as appropriate.

Under the combined 1st and 2nd Reviews, which took place in April 2011, the disbursement profile was agreed as set out in the table below:

* These are net disbursement figures. Gross borrowing will be higher due to the credit enhancement measures required under EFSF arrangements.

The funds to be sourced from the EU include an estimated €4.8 billion of bilateral loans from the UK, Sweden and Denmark. Under the bilateral agreement with the UK, which provides funding amounting to Stg£3.2 billion (€3.8 billion, based on the conversion rates prevailing in November 2010, is the assumed value in the table above), the funds should be disbursed in eight equal tranches starting in the third quarter of 2011.

The bilateral loan agreements, including the disbursement profiles, with Sweden and Denmark are being finalized. The current expectation is that the combined €1 billion from these sources will be split equally over 2012 and 2013.

The interest cost of future loan tranches from the EFSM and EFSF will be set on the disbursement date for each particular tranche but will be fixed for the term of the loan. All IMF monies have the same floating interest rate and margin adjustments. However, IMF monies drawn down to date have been hedged by the NTMA into fixed rate euro. The pricing structure for the EFSM, EFSF, the IMF and the bilateral loans is set out below:

EFSM: Loans are priced on the basis of the issuance yield on the bonds sold by the European Commission to fund the loan plus a margin of 292.5 basis points. The total interest cost will also include issuance costs incurred by the Commission.

EFSF: The basic interest cost of EFSF loans is calculated as the issuance yield payable by the EFSF on the bonds it has sold to fund the loan, plus a margin of 247 basis points. However, in its current form, the EFSF is required to undertake a number of credit enhancement measures to ensure it maintains the highest possible rating from the credit rating agencies. These measures include a Loan Specific Cash Buffer and the prepayment of the margin due on the loan. Under the Loan Specific Cash Buffer measure, the EFSF retains and invests a portion of monies it raises from the bonds it has issued to fund a specific loan. The borrower has to pay the difference between the yield on the bond issued and the return earned by the EFSF from its investment of this money. The prepayment of the margin of 247 basis points is done on a net present value basis. Accordingly, the coupons payable by the borrower over the term of the loan only relate to the cost of funds borne by the EFSF. This structure is unwieldy and agreement has been reached to amend it, including the pricing mechanism, and this will end the requirement for a Loan Specific Cash Buffer and the prepayment of the entire margin. Legislation is being prepared for the Oireachtas to ratify these amendments.

IMF: Interest is paid quarterly at the IMF's standard interest rate for drawings under its Extended Fund Facility. This rate is set by reference to the IMF's basic rate of charge plus surcharges which are based on the size of the outstanding loans relative to the country's IMF quota.

- For borrowings up to three times quota the interest rate is the weekly SDR rate (latest is 0.55%) plus 1% surcharge, i.e. 1.55%.

- Borrowings above the threshold of three times quota are charged an additional 2% i.e. 3.55%

- From 18 January 2014, the third anniversary of the availability of the 1st disbursement of the IMF funds to Ireland, an additional 1% is charged on borrowings over 3 times quota i.e. 4.55%

- In addition to the interest charge there is a once off up front handling fee of 0.5% for all draw downs. This equates to about 0.07% per annum over the weighted average life of the loans of 7.5 years. The SDR interest rate is reset weekly and is based on a weighted average of the three-month Eurepo rate, three-month Japanese Treasury Discount bills, three-month UK Treasury bills, and three-month US Treasury bills. It should be noted that the NTMA has converted the floating rate cost of IMF borrowing into fixed rate euro.

Bilateral Loans: To date there have been no draw downs from the bilateral partners. The UK loan agreement, which has been finalised for some time, stipulates that the interest rate on the amounts drawn down will be based on the Sterling Pound mid-market semi-annual swap rate at the time of drawdown plus a margin of 2.29%. The Danish and Swedish loan facilities have not yet been signed but are near completion. It is proposed that the interest rate on each will be based on the 3-month Euribor interest rate, a market reference rate of good standing, plus a margin yet to be agreed.