2.1 How does the PAF deliver put options?
The PAF delivers the put option using zero-coupon bonds termed PAFERNs (Pilot Auction Facility Emission Reduction Notes). As zero-coupon bonds, PAFERNs do not pay holders any interest, nor do they pay holders a traditional principal amount at maturity. Rather, upon delivering qualifying emission reductions, PAFERN holders receive a redemption payment determined by the strike price (see Auction Budget, Premium, Strike Price, and Deposit). Additional information can be found in the Draft Final Terms, which can be obtained by sending an e-mail to PAF_Secretariat@worldbank.org. The email must contain disclaimer language cut and pasted from this webpage.
2.2 When can put options be redeemed?
In the second auction, winners will receive a series of options, each with four consecutive annual maturity dates. Each winner’s allotment of options will be evenly divided between the four maturity dates. For example, an auction winner purchasing options for 100,000 tons of emission reductions will be eligible to redeem 25,000 tons in 2017, 25,000 in 2018, 25,000 in 2019, and 25,000 in 2020. The redemption dates will be announced prior to the auction and will occur at least one year from the auction date. See questions 2.6 and 2.7 for more information.
2.3 Must the bidder communicate which projects he/she intends to source emission reductions from at the time of the auction?
No, auction winners do not have to specify the projects that will source emission reductions at the time of the auction. It is at the time of redemption that the put option owner must identify the projects and demonstrate that these projects meet the eligibility criteria. However, the PAF does require that the project host site exist at the time of the auction. Additional information on host site eligibility can be found in the Environmental, Health & Safety and Integrity Criteria (footnotes 1, 5, 9, and 13).
2.4 Can I use emission reductions from multiple projects to redeem the put option? What is the minimum annual output required of an individual project?
Put option holders may use emission reductions from multiple projects, and there is no minimum annual output required for an individual project.
2.5 If I own more emission reductions than I have put options, can I redeem these emission reductions the following year?
The eligibility criteria specify the eligible generation and issuance periods for emission reductions. These periods vary by maturity but they do overlap in consecutive years, meaning that emission reductions with a generation and issuance period satisfying the requirements for more than one maturity can be redeemed in more than one year. The put option redemption dates will be fixed in the Final Bond Terms and the options themselves will not carry forward.
2.6 What happens if an option holder misses the deadline to redeem? Do the options roll over?
The options do not roll over. Instead, the options are tradable. The option holder also has the right to let the option expire without the emission reductions being delivered; there is no penalty for non-delivery.
2.7 Can put options be traded?
Yes, the put options are fully tradable, and each vintage can be traded separately. If an option owner is not able to deliver the emission reductions, he may be able to sell the option to an interested counterparty.
2.8 Does the World Bank facilitate secondary trading?
The World Bank will publish a list of the auction winners in order to facilitate secondary trading. Otherwise, the World Bank will not be involved in the secondary market.
2.9 What is the process for purchasing put options?
The World Bank, specifically the International Bank for Reconstruction and Development, will issue the puttable option bond and will be the counterpart.
2.10 Is there a contract between auction winners and the PAF that governs the PAFERN rules? What is the legal jurisdiction of these documents?
Yes, the PAF requires bidders to execute a Participation Agreement which governs their participation to the auction and their purchase of the PAFERNs. The Participation Agreement is be part of the Bidder Application Package, which can be obtained by sending an e-mail to PAF_Secretariat@worldbank.org. The email must contain disclaimer language cut and pasted from this webpage.
2.11 Is it possible to pay and get paid in any currency?
The PAF premium and strike price will be payable and paid in USD only.
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This page is for information only. Please see the disclaimer:
THE FOLLOWING IS A SUMMARY OF THE WORLD BANK’S PROPOSED PLAN TO ISSUE PILOT AUCTION FACILITY EMISSION REDUCTIONS NOTES (“PAFERNS”). IT IS NOT AN OFFER TO SELL PAFERNS OR AN INVITATION TO OFFER TO BUY PAFERNS. THIS SUMMARY IS SEPARATE FROM, AND SHOULD NOT BE READ IN COMBINATION WITH, ANY FUTURE OFFER OR SALE OF PAFERNS, WHICH WILL BE MADE IN COMPLIANCE WITH APPLICABLE LAWS AND UNDER ENTIRELY SEPARATE LEGAL DOCUMENTATION AND OFFERING MATERIALS. THIS SUMMARY IS VERY HIGH LEVEL FOR SIMPLICITY AND LEAVES OUT MATERIAL INFORMATION AND THE LEGAL DOCUMENTATION THAT IS EXPECTED TO GOVERN THE PAFERNS. FURTHER, IT IS CURRENT ONLY AS OF THE DATE OF POSTING TO THIS WEBSITE AND IS LIKELY TO BECOME OUTDATED AS THE PAFERNS LEGAL DOCUMENTATION IS DEVELOPED. THE STRUCTURE, TIMING AND MECHANICS OF THE ACTUAL PAFERNS, IF AND WHEN THEY ARE ISSUED, ARE SUBJECT TO CHANGE. POTENTIAL INVESTORS MUST OBTAIN A COPY OF THE COMPLETE LEGAL DOCUMENTATION PURSUANT TO WHICH THE PAFERNS WILL BE ISSUED, INCLUDING THE WORLD BANK’S MAY 2008 PROSPECTUS RELATING TO ITS GLOBAL DEBT ISSUANCE FACILITY AND THE FINAL TERMS FOR ANY ISSUANCE OF PAFERNS. POTENTIAL INVESTORS SHOULD NOT RELY ON THIS SUMMARY. BEFORE MAKING ANY INVESTMENT DECISION, POTENTIAL INVESTORS MUST REVIEW THE COMPLETE LEGAL DOCUMENTATION (ONCE AVAILABLE).
Puttable Bond - Bidders' Q&A
2.1 How does the PAF deliver put options?