Product regulations

This page contains information on:

• Types of repayment
• Interest
• Variable principal
• Standard loan agreement

Types of repayment
WSW’s standard loan agreements allow participants to choose various forms of repayment (annuities, straight-line or bullet) or combinations thereof. Guarantees are also available for housing associations wanting to repay loans in variable installments. The only condition in this respect is that the way in which the loan is to be drawn and repaid must be agreed at the outset. Participants cannot opt for loans where the amount outstanding increases during the term of the loan, such as loans with deferred interest payments (zero-coupon) or loans where the principal is indexed.

Fixed interest periods
Interest may be fixed for periods of between one month and fifty years. It may be fixed for the full term of the loan or for a period and then reset or it may be variable and based on Euribor rates.

Interest basis
There are many different choices available in respect of interest rates, which may be fixed or variable. Participants opting for fixed rates of interest may fix the rate for the full term of the loan or fix it for a period and subsequently agree a new fixed rate. Participants may also incorporate certain derivatives into loan agreements. WSW does not provide guarantees for derivatives that are not covered by the standard loan documentation.

WSW also guarantees loans that include elements of indexed-linked interest. These loans are partly based on fixed and partly on variable rates of interest. The fixed component reflects the prevailing levels of interest, while the variable component is directly linked to the Dutch inflation rate (based on the consumer price index for all households, published by Statistics Netherlands). It is only the interest and not the principal that is indexed. This form of funding has been incorporated into WSW’s interest risk management activities.

Contractual periods
Loans guaranteed by WSW are contracted for a minimum of two years and a maximum of fifty years.

Disbursement date
Once WSW has signed the guarantee agreement (the ‘contract of suretyship’), the principal must be disbursed within three years.

Euros
The loan principal must be denominated in Euros.

Variable principal
Variable-principal loans offer participants greater flexibility, which is primarily useful in helping them to accommodate differences between the timing of disposals of activities and investments. The interest on variable-principal loans is usually based on 1, 3, 6 or 12-month Euribor rates. The borrower can then choose every one, three, six or twelve months to draw amounts up to the maximum of the principal or repay up to eighty per cent of the principal. Banks are not required to hold capital in respect of amounts that are not drawn under these facilities, and this means a lower risk mark-up.

Other conditions for variable-principal WSW paper:

  • A maximum principal to be agreed.
  • At least 20% of the maximum principal will be drawn throughout the term of the loan.
  • The method of calculating interest will be agreed in advance and apply throughout the term of the loan and to the full amount drawn.
  • The lender is not allowed to cancel the agreement unilaterally.
  • The contract must be accommodated within WSW’s standard loan agreement.
  • The contract must be for a period of at least two years.
  • Interest must be based on at least the 1-month Euribor rate (i.e. no call or overnight rates).
  • Clear agreements must be reached on early repayments and disbursements. Funds can be drawn at any time, but repayments are only permitted on interest-refixing dates.
  • Guarantee fees are payable on 75% of the maximum principal.
  • Clauses 1, 5 and 7 of the standard loan agreement have been amended to cater for the ‘variable’ conditions.

The variable principal is also included in calculating the 15% ceiling each year, unless the variable interest has been capped at a realistic level (a cap is a derivative limiting the maximum amount of interest payable). This ceiling means that interest must not need to be refixed on more than 15% of the outstanding balance of loans in any one year (based on a rolling average over 12 months). In addition, the participant’s advance guarantee limit will be reduced by the maximum amount of the variable-principal loan throughout the term of the loan. A customized response may be possible if there are good reasons for a participant temporarily breaching the 15% limit.

Standard loan agreement
The terms and conditions agreed between lenders and WSW participants for loans guaranteed by WSW are detailed in the standard loan agreement. Standard WSW paper comprises:

  • the standard loan agreement;
  • the standard guarantee/contract of suretyship
  • the standard backstop agreement between the municipality and WSW.

These agreements are all an inherent part of the total package. The standard agreements include general provisions, which have been filed at the Hilversum Chamber of Commerce under number 41180946. The central government and WSW have signed an unlimited backstop agreement, which has been recorded in a notarial deed.
 

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