FHLB Boston Solutions in the Current Environment

Transcription

1 FHLB Boston Solutions in the Current Environment December 21, 2017 This webinar is being recorded Kevin Martin VP / Manager of Financial Strategies

2 Disclaimer This information is being presented for general information only. The information contained herein was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Members should not construe any of this information as business, legal, tax, or accounting advice from the Bank. Members should consult with their own independent business, legal, tax, and accounting advisers with respect to any of the material presented here. 2

3 Today s Topics Advance Solutions: Classic Plus Cap advance Expander advance 3

4 Advance Solutions

5 Classic Plus Cap Advance - Overview Classic advance containing an embedded interest-rate cap on LIBOR Members choose advance term, strike level of cap, and notional amount of cap Cap available on 1- or 3-month LIBOR Cap is in effect for the entire term of the advance Cost of cap included in the advance rate Notional amount either 1x, 2x, or 3x amount of advance Cost of cap based on term, strike rate, and notional amount Interest due on rate adjustment dates (in accordance with index, i.e. 1 or 3 months) Final maturity out to 20 years Minimum size of $2 million, can aggregate smaller amounts during special offerings 5

6 Classic Plus Cap Advance - Overview Advance rate will never exceed the initial advance rate, but If LIBOR exceeds the cap strike rate on a rate adjustment date, then the initial advance rate will be reduced until next reset date If LIBOR is below the cap strike rate then the advance rate reverts to the initial advance rate until the next reset date Interest rate on the advance is floored at zero 6

7 Classic Plus Cap Advance Rate Adjustment 2 Yr. Term; Cap Strike Rate 2.00%; 1x Notional, Initial Advance Rate 2.43% If LIBOR exceeds the cap strike rate then the initial advance rate will be reduced until next rate adjustment date Initial advance rate [notional x (LIBOR strike)] 2.43% [ 1 x (2.50% %)] 2.43% [ 1 x (0.50%)] 2.43% [ 0.50% ] Advance rate = 1.93% (in effect until next rate adjustment date) 7

8 Classic Plus Cap Advance - Indications Term Notional Amt of Cap Strike on 3mL Advance Rate 2Y 1x 2.00% 2.43% 3Y 1x 2.00% 2.68% As of December 13 8

9 Classic Plus Cap Advance Strategies Classic advance component is hedge against rising interest rates Embedded cap hedges exposure to rising short-term interest rates Can be used to lever the amount of rising rate protection Spread on a leverage transaction will widen if short-term rates rise above strike level of cap 9

10 Expander Advance Long-term, fixed-rate, nonamortizing advance Member holds 1x option to double the outstanding amount of the advance New funds are at the existing rate for the remaining term to maturity Member is under no obligation to exercise the option to take down additional funds Current indications: 3Y/1Y 2.54% 5Y/2Y 2.83% 10

11 Expander Advance - Strategies Use in a rising rate environment Reduces exposure to rising interest rates since you have the ability to take down additional funding at a predetermined rate The expansion opportunity may be used to offset outflows of surge deposits The expansion opportunity may be used to fund the extension of asset lives in a rising rate environment No need to match competitors deposit rates to compete for funding in a rising rate environment 11

12 Questions?