U.S. charges Israel 7% on loan guarantees

For those that argue that Israel gets a free ride.

U.S. charges Israel 7% on loan guarantees
By Yoram Gavison for Ha'Aretz

The U.S. is charging Israel a fee of 7 percent on its bonds issued under the loan guarantee program. The charges were discovered in a Bank of Israel report on macroeconomic and political developments released last week.

According to the report, 7 percent of the receipts from the Israeli government's bond issues is to be transferred to U.S. treasury in order to compensate it for the risk of the issue (known as scoring). This is considered to be are latively high rate for bond issues.

The value of the total bond issue is $3 billion or NIS 13.575 billion, which brings the fees to some NIS 1 billion, representing an additional 0.3 percent in annual interest costs for Israel.

The treasury publicized the results of its bond issue in the middle of September, and stated that it was pleased that the interest rate for the 30 year issue was 5.58 percent, only 38 basis points (0.38 percent) over the interest on U.S. government bonds. The 20 year bonds, which raised most of the funds - $1.15 billion out of a total of $1.6 billion raised on the issue to date - were sold at an interest rate of 5.53 percent, representing a premium of only 33 basis points over U.S. government rates for similar notes. However, the effective interest rate premium for the bonds including the fees paid to the U.S. treasury comes to 70 basis points.

The report also reveals how these fees were accounted for in the budget.

(the entire article can be read at
http://www.haaretz.com/hasen/spages/361807.html)