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Credit Products – Classic Plus Cap Advance

Intermediate- and long-term advance with an interest rate that adjusts periodically based on an embedded interest-rate cap position.


 Key Features

  • Fixed rate that may adjust periodically based on an embedded interest-rate cap position, fixed term, nonamortizing.

  • Contains an embedded LIBOR-indexed interest-rate cap, which will reduce the advance rate below the initial rate if LIBOR exceeds a predetermined strike rate.

  • The notional amount of the embedded LIBOR-indexed interest-rate cap must be at least equal to the amount of the advance and no greater than three times the amount of the advance.

  • The premium cost of the embedded cap feature is included in the advance rate on an annualized basis.

  • The interest rate on the advance shall not be less than zero.

  • The advance rate reverts to the initial advance rate until the next LIBOR reset if LIBOR is below the embedded cap strike rate.

Key Advantages

  • Depending on the embedded cap strike rate, the advance may provide accelerated relief from sharp increases in short-term interest rates.

Common Uses

  • Manage balance-sheet interest-rate sensitivity to increasing short-term interest rates.

  • Liability-sensitive members can use this product to extend their wholesale funding while providing additional margin relief in the form of a lower advance rate if LIBOR rises above the strike rate of the embedded interest-rate cap feature.

  • Fund purchases of mortgage-backed securities.

  • Manage the balance sheet.

Maturities

  • Terms out to 20 years.

Embedded Interest-Rate Cap Index

  • One- or three-month LIBOR.

  • The embedded interest-rate cap is in effect during the entire term of the advance.

Availability

  • Available until 1 p.m.

Disbursement

  • Funds are available two business days after the trade date.

Minimum

  • $2 million per transaction or an aggregate of $2 million for special offerings.

  • FHLB Boston will make its final pricing determination when the transaction can be executed.

Risks

  • The Federal Home Loan Bank of Boston does not act as a financial adviser, and members should independently evaluate the suitability and risks of these advances. Please see the Classic Plus Cap Advance Primer (Adobe PDF icon,) for a discussion of the risks and other considerations associated with this advance.

Prepayment

  • Prepayable in full or in part at any time, subject to a fee, which may be substantially greater than those associated with Classic advances of the same maturity and include any other termination costs to render the Bank financially indifferent to the member's decision to prepay.
    Partial prepayments may be in amounts as small as $100,000 and in intervals of $100,000 thereafter.

Rate-Adjustment Frequency

  • Cap valuation dates will be the same as the index, i.e. one or three months. If the cap is "in-the-money," the initial advance rate will be reduced by this amount and this adjusted interest rate will remain in effect until the next cap valuation date.

Payment of Principal and Interest

  • Principal due at maturity and interest due at one- or three-month intervals, in accordance with the index. If canceled, principal and interest are due on the cancellation date.
  • Interest on this advance will be calculated on an actual/360 basis, payable on the rate-adjustment dates (except that any interest accrued on the maturity date shall be paid on the maturity date).

Forward Rate Commitments

  • Not available.

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