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Loan Agreement LOAN AGREEMENT between THE EUROPEAN COMMUNITY as Lender and THE REPUBLIC OF LATVIA as Borrower THE BANK OF LATVIA as Agent to the Borrower EUR 3 100 000 000 _____ January 2009 Downloaded from http://www.tidyforms.com This Loan Agreement (the "Agreement") is made by and between the European Community (hereinafter referred to as the "EC" or the "Lender"), represented by the Commission of the European Communities (hereinafter referred to as the "Commission"), and the Republic of Latvia (hereinafter referred to as "Latvia" or the "Borrower"), represented by the Minister of Finance, Mr Atis Slakteris, and the Bank of Latvia acting as Agent on behalf of the Borrower (hereinafter referred to as the "Borrower's Agent"), represented by the Governor of the Bank of Latvia, Mr Ilmārs Rimšēvičs. Preamble Whereas: (1) Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States' balances of payments (OJ L 53, 23.2.2002, p. 1) empowered the Commission on behalf of the EC to contract borrowings on the capital markets or with financial institutions with the aim to grant loans to one or more Member States which are experiencing, or threatened with, difficulties in their balance of current payments or capital movements; (2) Latvia has requested medium-term financial assistance; (3) The Council, by its Decision 5255/09 of 20 January 2009 (hereinafter referred to as the "Decision") decided to grant Latvia under Regulation (EC) No 332/2002 a loan amounting to a maximum of EUR 3 100 000 000 with a maximum average maturity of seven years. The loan shall be made available in maximum six instalments; (4) The loan is granted in conjunction with a loan from the International Monetary Fund of SDR 1.5 billion (around EUR 1.7 billion) under a Stand-by arrangement approved on 23 December 2008. In addition, the Nordic countries (Sweden, Denmark, Finland, Norway and Estonia) are to contribute EUR 1.9 billion together, the World Bank EUR 0.4 billion, the European Bank for Reconstruction and Development, the Czech Republic and Poland a total of EUR 0.4 billion, bringing the total assistance to EUR 7.5 billion over the period to the first quarter of 2011; (5) The loan is linked to economic policy measures designed to support Latvia's balance of payments sustainability as determined in Articles 2 and 3 of the Decision; 2 Downloaded from http://www.tidyforms.com (6) The economic policy conditions to be respected by Latvia are laid down in the Memorandum of Understanding signed on ___ January 2009 between the Commission and Latvia and the Bank of Latvia and in subsequent (Supplemental) Memoranda of Understanding, if any (hereinafter referred to collectively as "Memorandum of Understanding"); (7) The first instalment shall be released subject to the entry into force of the Memorandum of Understanding and this Loan Agreement, as well as based on the Latvian authorities' economic stabilisation programme ("Economic stabilisation and growth revival programme") and amended budget for 2009, both adopted by the Latvian Parliament on 12 December 2008; (8) The release of instalments subsequent to the first one is conditional upon the Commission deciding favourably, after consultation with the Economic and Financial Committee, on the basis of the findings of its verification that the economic policy of Latvia accords with the adjustment or back-up programme or any other conditions laid down by the Council or in the Memorandum of Understanding; (9) The Commission will launch in due course, on behalf of the EC and after written agreement by the Borrower on the main terms as set out hereinafter, bond issues or any other appropriate financial transactions for the principal amount in Tranches, the proceeds of which shall be on-lent to the Borrower; (10) The contracts relating to the bond issue or to any other appropriate financial transaction, including a possible interest rate swap, will constitute an integral part of this Agreement as provided hereinafter; (11) The European Central Bank shall be acting as an agent to the Lender (hereinafter referred to as the "Lender's Agent"); (12) Appropriate measures related to the prevention of, and the fight against fraud, corruption and other irregularities affecting the assistance shall be provided for by the authorities of the Borrower; (13) The Commission, including the Anti-Fraud Office, shall have the right to perform on-the-spot checks and inspections, and the Court of Auditors the right to carry out audits, where appropriate, on the spot. Now, therefore, the parties hereto have agreed as follows: Article 1 – Loan Amount 1. The Lender will make available to the Borrower a loan of a total principal amount of up to EUR 3 100 000 000 (three billion, one hundred million) in maximum six instalments (each hereinafter referred to as “Instalment”, collectively all such Instalments hereinafter referred to as the "Loan"), subject to the terms and conditions defined in the Decision, in the Memorandum of Understanding and in this Agreement. 3 Downloaded from http://www.tidyforms.com 2. The principal amount of the first Instalment amounts to EUR 1 000 000 000 (one billion). The principal amount of any subsequent Instalment shall be laid down in the Memorandum of Understanding in accordance with Article 3 of the Decision. 3. An Instalment may consist of one or several tranches (hereinafter referred to as “Tranche(s)”). Article 2 – Maturity 1. The Average Maturity of the Loan shall not exceed seven years. It is calculated on the basis of the Disbursement Dates of the respective Tranches using the formulae indicated in paragraph 3. 2. The Average Maturity of the Tranches of an Instalment shall be set so that the Average Maturity of the Loan shall be, at any moment, in line with paragraph 1. 3. In order to calculate the Average Maturities referred to in paragraphs 1 and 2, the following formulae will be used: Average Maturity of a Tranche is the period of time between the Disbursement Date of the respective Tranche and the weighted average of its capital reimbursements. If R1, R2... Rn are the capital reimbursements at times t1, t2, ... tn from the Disbursement Date, the Average Maturity of the Tranche equals R1t1 R2t2 ... Rntn R1 R2 ... Rn Average Maturity of the Loan is the weighted average of the Average Maturity of the Tranches which constitute the Loan at any moment. If M1, M2, ... Mm is the Average Maturity of Tranches which amounted to A1, A2 ... Am then the Average M A M A ... M A Maturity of the Loan equals 1 1 2 2 m m A1 A2 ... Am Article 3 – Drawdown, Net Disbursement Amount and Conditions Precedent 1. Once the Lender has decided to release an Instalment in accordance with the Decision and the Memorandum of Understanding, the Borrower may request to the Lender in writing in the form of Annex 1 an Instalment or a Tranche of it, if the Instalment consists of more than one Tranches, and shall propose and pre- accept, after consultation of the Lender, the size, maturity, maximum interest rate and whether fixed or variable, minimum net proceeds and other characteristics of it, acceptable to the Borrower (hereinafter the "Request for Funds"). The reference to a Tranche in this Agreement shall be understood to mean an Instalment if the latter consists of only one Tranche. 2. Within the characteristics requested by the Borrower in the Request for Funds, the Lender shall transmit to the Borrower a notice in the form of Annex 2 setting out the main financial terms of the requested Tranche (hereinafter the “Acceptance Notice”). Once the Lender has served an Acceptance Notice relating to the Request for Funds, there shall, from the moment such Acceptance 4 Downloaded from http://www.tidyforms.com Notice is served, be a binding contract between the Lender and the Borrower. Nevertheless, the Lender's obligation to make a Tranche available shall be conditional upon it obtaining the corresponding funds from the international capital markets. The Lender shall launch, on behalf of the EC, a bond issue or any other appropriate financial transaction for the funding of the amount of the Tranche (the “Financial Transaction”). 3. Once the Financial Transaction is executed, the Request for Funds, the Acceptance Notice and copies of the contracts(s) relating to each Financial Transaction (hereinafter referred to as the “Borrowing Contracts”), shall constitute a finance contract (hereinafter referred to as the “Finance Contract”) between the Lender and the Borrower and form an integral part of this Agreement. 4. The net proceeds of the Tranche shall be equal to the proceeds of the Financial Transaction less the aggregate amount of the commissions and costs related to such Financial Transaction and to the preparation and execution of the Financial Transaction. In addition, costs referred to in Article 7, paragraph 6, shall also be deducted from the net proceeds, resulting to the amount to be disbursed to the Borrower (hereinafter referred to as the "Net Disbursement Amount"). 5. The Net Disbursement Amount of the Tranche shall be transferred by the Lender's Agent on the date when received (the "Disbursement Date") to the euro account of the Borrower's Agent in TARGET2, TARGET2 participant's SWIFT- BIC: LACBLV2X, TARGET2 account holder SWIFT-BIC: LACBLV2X, Ref.: "EC Balance of Payments Assistance to Latvia", or to such other euro-account as the Borrower's Agent shall advise in writing to the Lender's Agent with a copy addressed to the Borrower at the latest two Working Days prior to the Disbursement Date. 6. The Lender's obligation to transfer the Net Disbursement Amount to the Borrower with respect to the first Tranche of the first Instalment shall be subject to: (1) the Lender having received a legal opinion satisfactory to the Lender given by the Minister of Justice of the Borrower, in the form set out in Annex 3.
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