Illustrative cashflow comparison of selected debt protection instruments
Illustrative design criteria of 100m notional, 15-year tenor with a 5-year grace period and an overall annual interest of 4%; cashflows layout following a trigger event in year 7.
Annual repayment dues
[USD millions]
16
14
12
10
8
6
4
2
0
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Amortisation
Interest
Deferrals: Debt with deferrals offer a “payment holiday” for year 7 equivalent amount, yet increase in subsequent instalments for the borrower. Deferral insurance (ILL): Debt with deferral insurance (ILL) offer genuine risk transfer with permanent debt relief for the borrower – i.e. “payment holiday” equivalent amount, aka “insured interest” is paid for by the insurance.
Source: Swiss Re