| Advance Programs > |
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The PFR Advance is effectively the sale of one or more put options by the member to the FHLBank allowing the FHLBank, solely at its discretion following the initial “lockout” period, to “put” the advance, requiring the member to prepay the advance prior to the stated maturity. If loan is terminated prior to maturity, the FHLBank will offer replacement funding to the member at the then-prevailing rate of interest for an advance product then-offered by the FHLBank, subject to normal credit and collateral requirements. |
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The PSFR Advance is structured similar to the PFR Advance, with the additional element permitting the member to choose a threshold level (“strike rate”) on a reference interest rate index (typically 3-month LIBOR). After the initial “lockout” period and the first occurrence at which the reference interest rate index is at or above the strike rate (as chosen by the member) on a review date, the advance will automatically terminate. |
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Provide members with the opportunity to fund the balance sheet at rates significantly lower than those of traditional long-term, fixed-rate funding vehicles. |
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PSFR Advance enables the borrower to better analyze and track the probability of any future termination. |
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Because the PFR or PSFR Advance has the potential to be terminated prior to the original stated maturity, potentially increasing interest rate risk and liquidity risk for the member, use of a PFR or PSFR Advance requires careful risk analysis and active liability management. |
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| Term to Maturity |
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The PFR and PSFR Advance maturity terms are subject to the availability of comparable term financing to the FHLBank. |
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| Rate |
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Remains fixed for the duration of the loan (to maturity or until “put” option exercised).
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| Accrual Basis |
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Interest is accrued on an actual/actual day basis.
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| Terminate/ “Put” Option |
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FHLBank has the option solely at its discretion to terminate/Put only the entire PFR advance on a one time or periodic basis at the end of or following the initial “lockout” period prior to the stated maturity (for the PSFR, dependent upon the strike rate being attained on a scheduled review date).
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| Replacement Funding |
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If the PFR or PSFR advance is terminated requiring repayment prior to stated maturity, the FHLBank will offer replacement funding to the member at the then-prevailing rate of interest for an advance product then-offered by the FHLBank, subject to normal FHLBank credit and collateral requirements.
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| Offering Size |
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Minimum transaction size of $5 million, with $500,000 increments, due to limitations on hedge funding availability. Actual advance amount is subject to the FHLBank’s ability to execute a corresponding trade of equal size in the capital markets, which may also have an impact on pricing.
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| Prepayment |
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Prepayable in whole only subject to a termination fee that would make the FHLBank economically indifferent to prepayment (i.e., FHLBank’s hedge-unwind cost plus the present value of foregone profit on the advance).
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Special Note: The PFR and/or PSFR advances expose the borrower to option risk. The option may cause the advance to be terminated under circumstances unfavorable to the borrower. The Federal Home Loan Bank of Cincinnati makes no representations of the circumstances or criteria that would result in the termination/Put option being exercised.
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