Bond exchange offered investors the option to exchange bonds referencing LIBOR for new SOFR index-linked bonds
WASHINGTON, D.C., June 8, 2023 - The World Bank (International Bank for Reconstruction and Development, IBRD, Aaa/AAA) successfully completed a retail investor-oriented exchange offer of existing floating rate bonds referencing LIBOR (London Interbank Offered Rate) to new bonds that reference a SOFR (Secured Overnight Financing Rate) index. An extensive communication campaign was conducted to reach individual noteholders to inform them of market developments that would affect their bond holdings and give them the option to exchange their bonds for new, market-conforming bonds. Exchange offers for retail investors are rare. This was the first time that bonds were offered to retail investors as part of the transition from LIBOR to SOFR for a Sovereign, Supranational and Agency (SSA) bond issuer.
Included in the exchange were bonds originally sold mostly to retail investors in Italy in 2016 and 2017, but they also reached investors elsewhere in Europe and Asia. The bonds totalled approximately USD 850 million at the time of their issuance. Investors, their agents, and custodians were notified of the exchange offer via BNP Paribas serving as dealer manager as well as through a dedicated exchange agent and publication in Italian newspapers and had four weeks to express their interest. There was no obligation to take the exchange.
At the end of the four-week window, the exchange agent had responded to over 125 investor and custodian requests for information and approximately 180 orders were placed by holders of the bonds to exchange 42% of the outstanding bonds for a total of USD 360 million.
The successful completion of the exchange marks another 'first' for the World Bank. "We put in place the program to offer choice to investors and raise awareness in general in the market around valuation issues now that LIBOR will fully disappear as a reference rate soon," said George Richardson, Director, Capital Markets and Investments, World Bank. "It offered us another avenue of contact with our retail investor base and gave us an opportunity to provide an additional service. We received detailed information from the exchange agent about the types of questions and feedback they received from investors. This is another example of our efforts to be responsive to investor needs - from our established buyback program that gives liquidity to even the smallest of bonds on a continuous basis, to issuing bonds in a variety of currencies and maturities, we are always looking for ways to meet the specialized needs of our diverse investor base."
The transaction was structured so that the exchanged bonds and the new bonds had the same economic value. The exchange offers provided bondholders with a choice to take on new bonds which may be easier to value and hold in their portfolios, as markets continue their transition from LIBOR to SOFR as an alternative reference rate.
"The decision to invite investors to an exchange was about providing investors with an option and to give them the flexibility", said Stelios Manetas, Head of Liability Management, DCM/DMG Solutions, BNP Paribas. "The World Bank investor base is tremendously diverse and reaches thousands if not tens of thousands of different private investors and individuals. Through communication via the exchange agent, we learned that many bondholders of these particular bonds included persons holding a few thousand dollars. After significant explanation, investors were in the driver's seat to complete the cost/benefit calculation and chose what was best for their situation."
The World Bank has transitioned its own lending to SOFR and all of its new floating rate bonds reference the new benchmark. The World Bank has completed approximately USD 20 billion of SOFR-linked issuance at various maturity points out to 15-years, starting with its first 2-year in 2018 and including most recently a 4.5 year and 7-year issuance which raised over USD 3 billion to support projects and programs in its member countries. In terms of what is next for SOFR-linked issuance, Andrea Dore, Head of Funding, Capital Markets and Investments, World Bank, notes, "we will continue building out our offerings to meet investor needs."
This press release is not an offer for sale of securities of the International Bank for Reconstruction and Development ("IBRD"), also known in the capital markets as "World Bank". Any offering of World Bank securities will take place solely on the basis of the relevant offering documentation including, but not limited to, the prospectus, term sheet and/or final terms, as applicable, prepared by the World Bank or on behalf of the World Bank, and is subject to restrictions under the laws of several countries. World Bank securities may not be offered or sold except in compliance with all such laws.
Net proceeds of the securities described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs. Payments on the securities described herein are not funded by any particular project or program.
