Lyon Terms

1/ History

In November 1996, the Paris Club creditor countries, in the framework of the initiative for "Heavily Indebted Poor Countries" (HIPC), accepted to raise the level of cancellation up to 80% for the poorest countries with the highest indebtedness. This measure goes with specific contributions of the multilateral institutions so that they also reduce the level of their claims on the concerned countries.

As of today, 5 countries have benefited from the Lyons terms . Lyon terms are no longer in current use within the Paris Club. The current use is limited to countries that had previously benefited from these terms but that have not reached their HIPC initiative's decision point yet.

2/ Description

2.1. Non-ODA credits were cancelled up to an 80% level (after possible topping-up). Creditors chose to implement the terms through one of the three following options:

- "debt reduction option" ("DR"): 80% of the claims treated were cancelled (after possible topping-up), the outstanding part being rescheduled at the appropriate market rate according to standard table "A1" (23 years repayment period including 6-year grace and progressive payments);

- "debt service reduction option" ("DSR"): the claims treated were rescheduled at a reduced interest rate according to standard table "E1" (40-year repayment period including 8-year grace and progressive payments);

- " capitalisation of moratorium interest option" ("CMI"): the claims treated were rescheduled at a reduced interest rate according to standard table "E2" (40-year repayment period including 8-year grace and progressive payments).

2.2. Concerning ODA credits, they were rescheduled at an interest rate at least as favourable as the original concessional interest rate applying to these loans, according to standard table "D2" (40 years with 16-year grace and progressive repayment). This rescheduling usually resulted in a reduction of the net present value of the claims, as the original concessional rate was smaller than the appropriate market rate. The reduction in the net present value varied on a case by case basis, depending on the original interest rate of the claims of each creditor on each debtor country. By contrast, the Paris Club rescheduling has a positive effect on the expected value of the ODA claims, as the creditors salvage value relative to the recovery of otherwise defaulted amounts.

2.3. Lyon terms also included the possibility for creditor countries to conduct, on a bilateral and voluntary basis, debt swaps with the debtor country.

These swap operations in principle could be carried out without limit on official development aid loans, and up to 20% of the outstanding amount or 15 up to 30 million DSR for non-ODA credits.

Paris Club Creditors and debtors regularly conduct a reporting to the Paris Club Secretariat of the debt swaps conducted.