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Credit Products – Knockout Advance

Intermediate- and long-term, fixed-rate advances that will be canceled automatically if LIBOR hits or exceeds a certain strike rate on specified dates.

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 Key Features
  • Fixed rate
  • Nonamortizing
  • Early cancellation tied to LIBOR
Common Uses
  • Generally used in a flat yield curve environment to obtain a lower cost of funds than Classic advances with a maturity equal to the lockout period.

  • Fund short- or long-term assets.
Maturities
  • Available for terms out to 20 years, but always with the condition that the advance will be terminated prior to final maturity if LIBOR equals or exceeds a specified strike rate on a specified date. (LIBOR is the London Interbank Offered Rate, which refers to the rates that most major international banks dealing in Eurodollar currency charge each other for large loans.)
Lockout Periods
  • A Knockout advance is offered with an initial lockout period during which the advance will not be terminated.

  • You may choose a lockout period of three months to 10 years.
Cancellation
  • After the initial lockout period, the Federal Home Loan Bank of Boston will automatically cancel the advance on any specified cancellation date if LIBOR is equal to or greater than a predetermined "strike rate" four London business days prior to the scheduled cancellation date.

    Some Knockout advances are offered with only one cancellation date. Others are offered with a series of cancellation dates at regular intervals, usually quarterly.

    If the Knockout Advance is cancelled, you must repay the advance, but you may replace the advance with a new advance. The new advance may be for any structure and term to maturity agreed upon between you and the Bank, subject to the Bank's Products and Solutions Guide Adobe PDF icon. The rate on the new advance will be that in effect at the time the new advance is taken.

Availability
  • Available until 1 p.m.
Disbursement
  • Funds are available two business days after the trade date.
Minimum
  • $2 million minimum but smaller requests may be accommodated in special offerings.

  • The Federal Home Loan Bank of Boston will make its final pricing determination when the transaction can be executed.
Risks
  • Since they may be canceled before final maturity, Knockout advances require careful risk analysis and active liability management. The advance has features similar to an option.

  • 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 Knockout Advance Primer Adobe PDF icon for a discussion of the risks and other considerations associated with the Knockout advance.

  • We encourage you to review the risks and rewards of these advances and to consult your investment advisors about investment strategies that suit your risk profile and liability-management policies.
Payment of Principal and Interest
  • Principal due at maturity and interest due monthly on the second business day of the month.

  • If canceled, principal and interest are due on the cancellation date.

  • Interest is calculated on an actual/360-day basis.
Member-Initiated Prepayment
  • Prepayable at any time, subject to a fee, which may be substantially greater than those associated with Classic advances of the same maturity. Partial prepayments may be in amounts as small as $100,000 and in intervals of $100,000 thereafter.
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