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Credit Products – HLB-Option Plus Cap Advance

Intermediate- and long-term advance for which FHLB Boston holds the option to cancel on certain specified dates with an interest rate that adjusts periodically based on an embedded interest-rate cap position.


 Key Features
  • Fixed rate, nonamortizing

  • Similar to our HLB Option advance, but with an embedded LIBOR-indexed interest-rate cap, for the lockout period, 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.

  • If the advance is not cancelled at the end of the lockout period, the advance rate reverts to the initial advance rate for the remaining term or until the advance is cancelled.
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
  • Generally used in a flat yield curve environment to obtain a lower cost of funding than a Classic advance with a maturity equal to the lockout period. Added benefit of a reduced interest rate if rates rise above the cap strike level.

  • Fund short- or long-term assets.
Maturities
  • Out to 20 years, but always with the condition that FHLB Boston may cancel the advance prior to final maturity.
Lockout Periods
  • An HLB-Option Plus Cap advance is offered with an initial lockout period during which FHLB Boston cannot cancel the advance.

  • You may choose a lockout period of three months to 10 years.
Cancellation
  • After the initial lockout period, FHLB Boston may cancel the advance only on a scheduled cancellation date.

  • FHLB Boston makes no warranties as to the circumstances under which it might cancel an advance.

  • FHLB Boston will provide notice of cancellation in writing at least four business days before the cancellation date.

  • Some HLB-Option Plus Cap advances are offered with only one cancellation date. Others are offered with a series of cancellation dates at regular intervals (quarterly, semi-annually or annually).

  • If FHLB Boston exercises its option to cancel, 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. The rate on the new advance will be that in effect at the time the new advance is taken.
Embedded Interest Rate Cap Index
  • One- or three-month LIBOR.

  • The embedded interest-rate cap is in effect only during the lockout period.
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 HLB-Option Plus Cap Advance Primer Adobe PDF icon for a discussion of the risks and other considerations associated with the Member Option advance.
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.

  • Member will be charged for the remaining premium cost of the embedded cap feature net of the actual unwind value on the Bank’s underlying cap.
Rate-Adjustment Frequency
  • Cap valuation dates will be the same as the index, i.e. one or three months during the lockout period. 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
  • Interest on this advance will be calculated on an actual/360 basis, payable monthly on the second Boston banking day of the month in arrears (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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