FT-DOC ITA
Moderator: Linda Abbruzzese
May 14, 2009
1:00 pm CT
Coordinator: Good afternoon and thank you for standing by. All participants will be in a listen-only mode until the question and answer section. This conference is being recorded. If you have any objections you may disconnect at this time. I'd now like to turn the call over to Linda Abbruzzese. You may begin.
Linda Abbruzzese: Thank you and good afternoon for those of you joining on the east coast and good morning for those of you joining on the west. Thank you for joining us for our Webinar on Ex/Im Banks Webinar series on Extend Credit and Get Paid Too.
I am Linda Abbruzzese, International Trade Specialist for the Marketing and Communications Office for the U.S. Commercial Service at the Department of Commerce.
This Webinar is being brought to you in cooperation by the U.S. Commercial Service and Export/Import Banks. This Webinar, presented by Export/Import Bank, is a second of a series of five Webinars which will focus on the aspects of export financing.
This Webinar will talk about extending credit and how to get paid, protecting your company, about non payment to allow yourself to see on competitive open account terms rather than acquiring cash in advance.
This Webinar will also focus on how you can cover 90% to 100% non payment risk at an affordable premium, replace cash in advance, letters of credit and other documentary sales.
As well as provide qualifying international buyers with an advantageous terms of credit, enhance your companies balance sheet and improve cash flow as well insure all export sales which is sold from a single buyer.
In a moment, I'll turn this presentation over to Augustine Grace, Senior Business Development Officer of the Business Development for Export/Import Bank. Also speaking will be Walter Kosciow, Vice President of the Short-Term Division of the Export/Import Bank.
All speakers will be available at the end of the presentation to answer your questions. Contact information will also be provided to everyone.
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And now I'd like to introduce live online Senior Business Development Officer, Business Development for the Export/Import Bank Augustine Grace. Augustine, thank you for joining us.
Augustine Grace: Thank you Linda, good afternoon and thank you for joining this Webinar for the short-term accounts receivable insurance. As Linda mentioned this a second of a three part series that Ex/Im bank will provide this month.
This is where you'll learn how to use Ex/Im Banks insurance product. The next session will focus on medium and long-term buyer financing. We will talk about the medium term insurance and the medium and long-term guarantees. We hope you will be able to sign up for the Webinar with us Tuesday, May 19.
Now Ex/Im Bank has the one headquarters here in Washington D.C. We have five regional offices and four satellite offices throughout the United States. We work with lenders, brokers, and city state partners which can be contacted in your local area.
Please check our Web site www.exim.gov for partners and contact information. You'll also find product information and learn how we can help you finance your exports. Now I'd like to turn the program over to Walter.
Walter Kosciow: Thank you Gus and good afternoon everyone. Welcome to today’s Webinar on extending short-term credit to foreign buyers and how Ex/Im Bank’s insurance can protect your foreign receivables against non-payment risk.
Export credit insurance is a cost effective solution offering you protection against a foreign buyers non-payment. It’s intended to compliment your credit practices and procedures.
The presentation today is largely based - or to address exporter needs, however in the list of attendees there are some financial institutions. Therefore the information presented should be of interest to both exporting companies and financial institutions.
They'll be six general topics. These will be what are the general benefits of export credit insurance, secondly what is the coverage that Ex/Im Bank offers, third the general eligibility requirements, fourth the product options, fifth the cost and sixth managing an export credit insurance policy leading into how to get started working with Ex/Im bank.
First on general benefits. Often times an exporters' introduction to export credit insurance would be through a lender because of the need to finance a foreign export credit receivable portfolio.
Lenders would benefit because the insurance reduces their risk, it helps them in case their lending capacity is pressing up against lending limits overall or in specific countries.
Certainly it’s an avenue for a lender or a bank to compete effectively for new customers and exporters certainly through their lenders would know that they can comfortably extend credit to international buyers.
We'll now turn and focus on the benefits to the exporter. There are three general reasons why export credit insurance would make sense to have in building your export credit portfolio.
First it would be for risk mitigation purposes. Whether there are risks that are specific to a particular foreign buyer you are selling to, there could be country risk issues, there could be industry risk issues and I did notice in the distribution list of attendees that a number of different industries participants are represented going from true exporting, paper, auto parts and other products.
So there may be a variety of risks that are to be mitigated and the insurance can do that.
Secondly, it helps move you to more marketable terms. Away from cash in advance or letters of credit to what has become progressively more common in today’s international trade marketplace of basically open terms.
Open terms would be transactions were a purchase order is received from a foreign buyer and the exporter than invoices the shipment. Those are the general documents of an open account transaction.
And the terms may vary. For an industry such as fresh fruit, most common terms are 30 days or less. Certainly other products moving toward capital goods would be further in terms of length.
Finally the third benefit would be that export credit insurance is a useful financing tool to obtain lending from a financial institution. Certainly it can also accelerate an exporters' cash flow. And how would that work?
If you sell on credit terms overseas, for instance on 90 day terms, if you have the insurance which a lender may require to upgrade the collateral on the foreign receivable loan, okay, the lender would then be able to fund or provide financing against presentation of your documents, and the exporter no longer has to wait the full 90 days for the repayment. So it does improve the cash flow.
The general risks that are covered by export credit insurance at Ex/Im Bank are both commercial and political risks. There are some examples if you’re viewing on your screen. Under commercial risk, the most common are insolvency, bankruptcy and protracted default.
On the political side, there are certain events that could cause prevention of the buyer from making payment or there could be an inability of actually exporting your products outside the United States or into the foreign buyers' country. So cancellation of import and export license would also protect you if you were attempting to make the shipment.
Finally, another political risk would be the inability of transferring from local currency into U.S. dollars because of the unavailability of the local country designated agency that would be transferring the local currency into U.S. dollars.
Okay, risks that are not covered by an export credit insurance policy, for example, are disputes. If an exporter, for instance, had ordered apples that were red and green apples were exported, this could give rise to a dispute between the buyer and the exporting seller.
The coverage does not include a dispute but if adjudicated and the buyer is obligated to pay and does not, then the coverage would result in a claim payment. We also do not cover cancellation of sales contracts.
The insurance policy also does not cover the currency devaluation. And currently, in Mexico for instance, we have noticed over the past 8 to 12 months the currency has devalued anywhere between 30 to 50% over this period.
And had a transaction denominated in U.S. dollars and then repaid locally, but the amount of pesos at the time of a shipment was different from the time of payment, that difference, or due to devaluation of the currency, would not be covered.
This is something that would normally be done by the foreign buyer hedging or using other methods to address that devaluation risk.
The payment terms under a short-term export credit insurance policy are for most products the limitation is up to 180 days. Exceptionally there are terms out to 360 but specifically for certain products such as bulk agricultural commodities and capital goods.
Ex/Im Bank has certain requirements with regards to the products being exported. Each product must have at least 51% U.S. Content.
The products must be shipped from the United States, manufactured in the United States and should the exporter be performing services, all of the services must be performed by U.S. based personnel for those that are temporarily located overseas.
I apologize on having some difficulty with the slides prompting themselves, okay. Okay, the product choices. Ex/Im Banks short-term credit insurance policies give the exporter the option of insuring just one buyer for multiple transactions or it can cover an entire portfolio of buyers.
Depending on your needs, whether you perceive risks in just a single country but multiple buyers, a single buyer policy might be the best option. It covers the one buyer, it is non-cancelable and the cover for both commercial and political risks is 90%. That would mean that 10% of the risk is held by the exporter and there is no deductible on the single buyer policy.
All single buyer policies are underwritten by Export/Import Bank upon receipt of an application.
Typically the information - the credit information that is required to support the approval of coverage on a single buyer basis is normally a credit report and the prior ledger experience of the exporter or as a substitute, should the buyer be a new customer for the exporter, a supplier reference from another supplier.
And if the transaction is larger than $300,000 then financial statements on the foreign buyer would be required. For amounts exceeding $1 million, three years of audit financial statements from the buyer would be required.
Now alternatively, the other option, should the exporter require coverage on it’s entire portfolio that is conducted on credit terms, the multi-buyer insurance policy would be the preferred choice.
Buyer credit limits are endorsed to the policy. There may be some limited delegated authority based an exporter experience that Ex/Im Bank would convey to the exporter to make decisions on the smallest credits. The larger credits however must be submitted to Ex/Im Bank for credit approval.
The coverage under a multi-buyer policy is both 95% for commercial and 95% for political.
The question may arise as to why is the coverage higher on multi-buyer versus single buyer policy? And the answer is very simply, the single buyer policy is innately selective by nature. Meaning the exporter has applied because they perceive a risk with a specific select buyer. That connotes generally higher risks, consequently a lower percentage of cover.
On the multi-buyer policy, the higher percentage of coverage addresses the fact that the exporter has pooled risk from many buyers and typically under a multi-buyer policy, these represent repetitive sales.
So the risk portfolio is different with a blend of risks under a multi-buyer and consequently the retention of risk is only 5% on the multi-buyer policy.
Ex/Im Bank does offer some enhancements for qualified small businesses and the multi-buyer policy has an option of no deductible for qualified small businesses.
Generally a qualified small business is an exporter who meets the Small Business Administration guidelines or standard of being a small business. And secondly, it would be an exporter that sales on an annual basis $5 million or less on credit terms. That would be the criteria for enhancements for small businesses whereby there is no first loss deductible.
For those who are not qualified small businesses, the deductible is usually a percentage of the total volume of shipments made during a year. It is not a per transaction deductible like your car insurance would be. It is a deductible based on 12 months of shipments and it only covers a first loss.
So, as an example, if a policy is written with a $25,000 deductible and the very first shipment perhaps defaults and results in a claim payment by Ex/Im Bank and it is for $25,000, there would be no additional deductible applied to all other remaining shipments during the 12 month period.
Now what is the cost of multi-buyer insurance policies? Displayed is a table which shows the rates on a per $100 basis for a transaction given the specific selling terms and the terms from top to bottom become progressively longer and at the same time riskier. The longer the credit, the higher the risk, consequently the higher the price.
In the three columns, the rates represent Class 1 which is a sovereign buyer of which there are very few world wide, typically would be a ministry of finance entity which would be guaranteeing the transaction or the Central Bank.
What is most common is the final column Class 3, those are private buyers. Typically the majority of transactions that Ex/Im Bank covers and the most common transaction term length is 60 day terms.
Consequently for private sector buyer, irrespective of country, the premium rate would be just over 1/2%, 55 cents for $100. So for a $1 million transaction, the premium would be $5500 to cover a 60 day transaction irrespective of country.
Now let me accentuate that these premium rates are not affected by country risks. This is the Small Business premium rate schedule that is applicable to the qualified small businesses that are both SBA small and export less than $5 million per year.
This is a blended rate schedule and again the rate at 60 days for a private sector buyer would be the same whether the country would be Brazil or whether it would be Western Europe, England for instance, or Germany.
The standard multi-buyer policy however does blend the exporters' entire portfolio of countries. It takes into account the range of terms, some shipments may be made on 60 days, some may be made on 90 or 120 days. So we tailor a specific premium rate for a standard multi-buyer policy based on characteristics of its portfolio.
Again, that being the spread of the country risks, the spread of the term risks and the classifications of buyers whether they are private buyers or public buyers or government buyers.
Generally our average premium rate for standard policies is about 1/2% but again that’s representing our entire portfolio.
Our portfolio is top heavy in Latin America. So Latin American countries typically and higher risk countries will be rated with higher risk, consequently the rates comprising that tailored composite rate will be driven higher by the higher risk countries, driven lower by the lower risk countries.
Now an exporter in purchasing a policy, before I actually address the assignments to a lender which is the practice of how lending can be protected for lender and how the exporter receives lending, but let me just step back a second to describe how this all works.
First, after the application for a policy, whether there is a multi-buyer or single buyer policy, Ex/Im Bank reviews the application and requisites the credit information.
A quotation is issued. The exporter generally has 90 days to decide to accept the quotation and the acceptance requires a nominal advance which is refundable should the policy be cancelled.
Once the policy is issued for multi-buyer policies, the exporter then concentrates on qualifying their buyers, either through delegated authority that Ex/Im Bank has endorsed to their policy or Ex/Im Bank approves in buyers that are above that delegated authority.
So qualification of buyers is your first step. And for each buyer you would require credit information to support a credit limit.
Once the buyers are qualified, you make your shipment. It’s very important to maintain copies or the original documentation. And generally that’s the purchase order from the buyer, your invoice and an ocean or airway bill of lading or shipping document that shows the product going from yourself to the buyer.
Now, if there is a default the exporter is eligible to file a claim once the default goes past 90 days past due. The claim filing period is between 91 days and 240 days after the due date. Fully submitted claims are generally processed in 60 days or less. So that’s generally the process of managing a policy.
And I apologize, I skipped one step in that when you make your shipments you then must report on a monthly basis the shipment to Ex/Im Bank and pay your premiums.
So there is some diligence involved in one, qualifying your buyer, two, documenting your shipment, three, reporting the shipment, four, monitoring the credit and if it’s slow, to initiate collection practices. And if a claim is filed to assemble the shipment information, submit the complete claim and those generally are paid in 60 days or less.
Okay. Having gone over that general sequence of how the policy works, assigning a policy to a lender - it means that the exporter, in signing a simple form, is signifying that any claims proceeds paid under the policy, that the lender can share in those proceeds. Thereby the assignment helps collateralize the receivable financing.
For qualified small businesses, Ex/Im Bank offers an enhanced assignment. Again, these are small businesses that meet both the Small Business Administration criteria of being a small business in their industry class and also export less than $5 million on an annual basis.
What does the enhanced assignment do for the lender? It adds exporter performance risk protection. Performance risk essentially means did the exporter follow the requirements of the policy?
Export credit insurance, unlike a guarantee, is a conditional product. The policy text essentially spells out the requirements or agreements of the exporter.
Now I mention many of these in terms of again qualifying your buyers, reporting your shipments and also exporting products that are eligible for the insurance coverage. Those are the general requirements.
But an important requirement as well is if a buyer is past due more than 90 days, then the exporter should stop making additional shipments.
So performance risks would represent any event or case of where the exporter has not met the requirements of the policy. The enhanced assignment protects the lender against that performance risk.
On the other - a common one might be failure to report the shipment or the premium, paying the premium. The lender would be held harmless, the lender would be made whole.
Typically what lenders will do with an export credit insurance policy, they will lend up to but rarely if ever exceed the coverage percentage.
Typically, lenders will lend just below the insured percentage. And as mentioned earlier, the percentage of coverage for single-buyer insurance is 90% and the percentage of coverage is 95% for multi-buyer. The enhanced assignment is the only one that allows lenders to file a claim. The non-enhanced assignment can only be filed by the exporter.
Okay. Managing your policy. I’ll take one step back again because I was remiss to just provide some additional information on the single-buyer policy which the premium rate is dependent on the country of that buyer and the selling terms and that was the policy with the 90% coverage and no deductible.
But it also does have the requirement where you’re filing monthly shipments and paying monthly premiums.
So how do you choose between a single-buyer or a multi-buyer policy if you with to take the next step? We advise that you would consult either an export credit insurance broker or one of our regional offices, whichever is closest to you. Now at the end of this PowerPoint presentation, we do have contact information for all five of our regional offices, as well as our Web site.
Through the Ex/Im Bank Web site, you can access a broker locater. It’s a dropdown list that’s assembled according to state and it does show the insurance brokers who specialize in export credit insurance that may be nearest to you for your choosing.
There is no cost to you to utilize an Ex/Im Bank registered broker. They are paid commissions by Ex/Im Bank from premiums that we collect.
Our regional offices are very good sources for you getting started. They can help you tailor an insurance product at Ex/Im Bank to your needs. They are in frequent contact with the underwriters, so we would highly encourage that you start with an Ex/Im Bank regional office.
As mentioned during the description of how the products work, documentation is very critical. To get value out of this product, assuring that you have the base documents which again, are purchase order, invoice, and bill of lading or shipping document, it’s vital that you keep those documents.
Ex/Im Bank utilizes a country limitation schedule which covers over 150 countries. This is your first stop in terms of determining whether Ex/Im Bank is providing coverage in a particular country.
The country limitation schedule will show what our coverage policy is on transactions for one-year term or less, medium term and longer term. If there are any restrictions in particular countries, there will be footnotes that will indicate what those restrictions are.
In managing your policy, again, accentuating the fact that it is a conditional product and that following the policy requirements when you’re extending credit is important. By the claim filing window, as mentioned earlier, is a period between three to eight months after the default.
Now in 2006, Ex/Im Bank transferred its business to a Web-based system, so exporters have the option of applying for insurance, either hard copy paper or registering online, completing an online application and electronically submitting the application.
The advantage to accessing Ex/Im online, our Web-based system, is that your transactions will be attended to much quicker than if you submitted the paper application.
For more information on not only Ex/Im Bank programs, short-term insurance, medium-term insurance, we have the Web site displayed here, www.exim, E-X-I-M,.gov. Within our Web site, there is a link for accessing the Ex/Im online system and the link is also displayed on the screen.
Okay, returning to the benefits and concluding the presentation with regards to utilizing Ex/Im online. Ex/Im online is not only an intake solution for applications, but the transactions that you submit are underwritten by Ex/Im Bank underwriters through the online system and very importantly, when we issue a policy, the policies are accessible through the online system.
The exporter can have one or multiple registered users who can use the online system, view the policy, conduct application for buyer credit approvals, reporting your monthly shipments and even paying your premiums electronically. The options are ACH, credit card.
A very important benefit of utilizing the Ex/Im online system is that the policyholder and exporter can track the status of all applications. So at any time you can look at your policy, you can look at what pending applications and which underwriter is processing the applications.
The system does send out email notifications when there is an action and as mentioned earlier, real time status is available online.
Now how to contact us. Again, I would highly recommend that any exporter with interest in Ex/Im Bank export credit insurance, contact the nearest Ex/Im Bank regional office. There are numbers displayed for these offices on the screen and contact information is also available through the listed Web site.
I thank you very much for participating and hopefully this introduction to export credit insurance spurs your interest. And, if you have any questions, I will be happy to answer them during the remainder of this Webinar.
And if we don’t get to all questions, please feel free to contact one of the regional offices and they will help you with an answer and a solution for you. Thank you and have a great day.
Linda Abbruzzese: Thank you Walter for your presentation. Thank you very much. Now we’ll go to our questions that were submitted by our audience. We’ll start with the first question from (Carl Rogers) and let me put this on speakerphone so that Walter can hear this. Okay. We’ll start with our first question from (Carl Rogers). What if there is limited financial information on a foreign buyer?
Walter Kosciow: Thanks (Carl). Good question. Credit information on foreign buyers varies worldwide. Certainly in your more developed countries, there is going to be a greater opportunity for more substantive and readily available credit information.
Generally, Ex/Im Bank has credit standards. They’re based on the amount of the transaction and for amounts that are $100,000 or less, you only need either your own trade experience, a supplier reference or a credit report.
Addressing the question, what happens if you have insufficient information or you cannot obtain financial statements? Not having financial statements on the buyer would be problematic for larger amounts.
Now we can mitigate some transactions. What is a highly useful underwriting resource these days is through Googling information on the company, we might be able to mitigate some of the information that is not available.
But I would accentuate, if an exporter visits the buyer, if there is a story to be told and a justification as to why it’s a good credit, any information outside of the standard or normal orthodox information, if you wish, is certainly helpful.
Linda Abbruzzese: Okay. Great. Thank you, Walter. We’ll go to our next question. This is from (Janet Shou) - forgive me if I don’t know how to pronounce that last name correctly. It’s really not a question, it’s regarding - would like know (unintelligible) about time to obtain a quote on a single-buyer policy.
Walter Kosciow: Okay. Single-buyer policy turnaround time would be dictated largely by the amount that is being requested. For transactions that are under $300,000, the turnaround time would be a week or less and that would be again, if the application is complete.
For $300,000 all that would be required would be a credit agency report and either the exporter’s ledger history or another supplier’s reference.
So larger transactions where financial statements are required, they may be spread and transactions that are over a million dollars would require audited three-year fiscal year-end statements. Those transactions could take from ten days to three weeks.
Linda Abbruzzese: Okay. And the second part of that question from (Janet) is also could you please outline the eligibility requirements of the program?
Walter Kosciow: On a single-buyer policy - it’s a good question because the multi-buyer policy, we do factor in quite a bit of information on the exporter themselves. In other words, how well do they manage their credit and how good has their past experience been because that dictates some delegated authority.
Now on a single-buyer, which is select risk, we require far less information on the exporter and our focus is on analyzing the credit worthiness of the buyer.
The eligibility requirements thus are fairly narrow, but largely driven by whether the product is a product that is shipped from the United States, whether it contains at least 51% of U.S. Content and whether it is not a military product, a nuclear product. So it has more to do perhaps, as far as the product, than as far as buyer or exporter eligibility.
We - they do have short-term credit standards that do outline the base standards for approval of a policy. On a single-buyer policy, essentially we pull up a Dun & Bradstreet Report on the exporter. The exporter does not need to supply that, okay.
But, the credit standards on the exporter would require that the company has been operating for at least one year. It’s not necessary that they have prior export experience, but it certainly does help.
The remaining credit standards on a single-buyer policy relates to the foreign buyer. And the standards essentially are the foreign buyer should be a company in business for three years or more and it should demonstrate recent repayment history, again, through the credit information that is required based on the transaction amount.
Linda Abbruzzese: Great. Thank you - that was - thank you very much Walter. Next question here from (John Roy). The question is can a policy be written for an existing accounts receivable? For example, a $580,000 receivable from a Nigerian customer could be repaid over a period of six months.
Walter Kosciow: Okay. This question asks whether we would backdate coverage for a transaction that has already been shipped. Generally, we can consider backdating coverage. We would not do so if the credit had all ready matured or the due date had been passed because it’s in default.
In this particular example, for $580,000, a Nigerian customer to be repaid over 180 days, backdating for 30, potentially 60 days, wouldn’t necessarily be problematic, but something that is further along or aged closer to the due date could be problematic.
And I’m not going to go into the hypothetical cases of what would be problematic or not, but certainly there could be country issues. There could be industry issues depending on the product, but from a general perspective, if the due date has not - is not near, we can consider a backdate.
Linda Abbruzzese: Okay. Thank you very much Walter. Next question. And just to let everyone know, in front of you is our contact slides and if you would like to get in contact with any of our speakers today there’s their information.
Walter is here, but Gus has his contact information, but Walter, just to let you know who he is. If you need to ask Walter some questions, I - Gus can help you out with that.
Next question here. It looks like - and excuse me for the pronunciation of the first name, looks like (Izerzie Felix). Who - the question is who is in charge of the collection process once an account becomes default?
Walter Kosciow: Okay. Good question. A claim has been submitted - well actually, when it says account becomes in default, I have to assume that (Izerzie) or (Felix) - Mr. (Felix) - that the claim has been filed.
The exporter certainly has the option of not filing a claim, but that would be unusual. So once the default passes 90 days past due and a claim is submitted, Ex/Im Bank process completed claims in 60 days or less.
When we pay out a claim, the exporter must sign over the debt instrument to Ex/Im Bank and Ex/Im Bank will proceed with collection.
Now we may contact the exporter because the exporter may have the best communication possibilities or assist us with a collection, but Ex/Im Bank does utilize a private sector out-source collection agency to collect on any transactions that we have paid out on claims.
Typically what happens is, again, the insurance coverage, whether it’s 90% or 95%, we pay out that amount. If Ex/Im Bank makes full collection, we are made whole and then the balance is then remunerated through the export.
Linda Abbruzzese: Okay. Next question. We have a lot of questions here, so I’m just going to go through them and thank you, this is great. The next question is from (Russell Pierson). Is there a minimum amount you can insure?
Walter Kosciow: There are no minimum amounts. Either the single-buyer or the multi-buyer insurance policy allows you to insure any amount.
Linda Abbruzzese: Okay. Great. Thank you. (Rebecca Gray). Next question. Can repetitive shipments to one customer be considered multi-buyer?
Walter Kosciow: Repetitive shipments can actually made under a single-buyer policy or multi-buyer. They are both 12-month policy periods, so one shipment to a buyer or multiple shipments to a buyer can be insured.
Linda Abbruzzese: Okay. Thank you. (Judy Netland) has a question. You showed us rates for the multi-buyer for small business. How do the rates vary for single-buyer for a large business?
Walter Kosciow: Okay. Good question. The rates for single-buyers are based on the country. It’s probably best to give you an example perhaps for say the United Kingdom, England.
A 60-day term transaction in England probably would be 34 cents - 32 cents per $100, so it’s less than half of a percent. The same term transaction in a high-risk Country, such as Brazil, probably would be 2 to 2-1/2 times that amount - around 70 cents per $100.
The premium rates do not vary whether it’s a large or small business. What does vary is the advance amount or minimum amount that must be paid up front to issue a single-buyer policy.
For a small business that minimum amount is $500. For a large business it could be $1500. That minimum, however, is refundable if the policy is utilized and shipment premiums exceed that $500 or $1500.
Linda Abbruzzese: Thank you, even (Russ Stanley) has a question again with regards to multi-buyer policy. He asks can we exclude the domestic sales as we already use other insurance for our domestic business?
Walter Kosciow: Yes, export credit insurance is solely for foreign receivables, you do not report your domestic business.
Linda Abbruzzese: Thank you. (Ricardo Gonzales') question is how many years of financial statements are needed?
Walter Kosciow: On a buyer credit application, a minimum of two years financials are required for any amount in excess of $300,000. Now from $300,000 to under a million it’s not necessary that they be audited statements.
They can be signed - company prepared statements or CPA reviewed with notes. It’s once the transaction exceeds $1 million, that Ex/Im Bank requires three years of audited financial statements.
Linda Abbruzzese: Thank you. (Rafael DeArtimus') question is what if you qualify as a small business under (SCA) guidelines that export more than $5 million a year?
Walter Kosciow: Okay. Exporting more than $5 million a year simply means that the small business is not entitled to an enhanced multi-buyer insurance policy and that’s the one which carries no deductable and makes available the enhanced assignment protecting lenders against export performance riffs.
The solution therefore for a small business that exceeds the $5 million annual shipments would be the standard multi-buyer insurance policy. It would carry a deductable and in general, for something on the order of 5 to $6 million. The deductable probably would be in the vicinity of $25,000 for the 12 month policy period.
Linda Abbruzzese: Thank you very much. (Laura Newhart)’s question is many U.S. Companies are manufacturing the goods in foreign countries, more specifically, many of the products I saw are manufactured in China with U.S. brands, can these apply?
Walter Kosciow: This is a major obstacle for how the globalized world today is sourcing - especially U.S. Companies - sourcing many of their products in other markets.
Generally, if the product is manufactured in China, but branded under a U.S. brand, we cannot cover those. And I’m just speaking in general terms, not knowing whether the products are actually returned to the United States for resale or they are sold after manufacture in China.
But our programs - and being supportive of U.S. labor, we have to hold to the minimum content requirements of 51% U.S. Components or a content value. They have to be shipped from the United States and the products have to be manufactured in the United States.
Some of the components can be manufactured oversees, but when comprising the entire product, as long as the foreign content is less than 50%, that would be eligible.
Linda Abbruzzese: Okay, great. Thank you. Next question here from (Robert Pulsters), could you please explain when we should use an independent credit insurance broker versus going directly to Ex/Im Bank and file an insurance application?
Walter Kosciow: Okay. I would encourage contacting a regional office first because once they are able to understand your business and your needs they can direct you to either a short list of brokers, if you are inclined to using a broker, or you can submit your applications directly.
Now the benefit of having a broker is they not only know our online system, they know our forms, they can get some of the credit information for you as some brokers have contracts with major credit report agencies, but typically the choice of whether to use a broker or work for a regional office is the exporters.
Again, the encouragement is that the regional office and depending what your needs are, would be the best place to start.
Linda Abbruzzese: Okay, great. Thank you. We have a lot of written questions left, but I want to give this opportunity to some of you who might have other things to do at the end of this hour, so I’m going to open the line for voice questions.
And please press star 1 on your touch tone telephone to ask a voice question. Operator, can you please open the line.
Coordinator: Yes, it is star 1. One moment for the first question. Our first question comes from (Phil Pfeiffer).
(Phil Pfeiffer): Yes and I got a question about continuing of the products that are made 51%, you indicate, in USA and also consolidated containers.
Would it be possible - let’s say we had a 40 foot container that had half of that product was 100% made in the USA and the other half of that product was made - the country of origin was outside of USA - are there other complications in covering a portion of that or does it have to be all or nothing?
Walter Kosciow: Yes, unfortunately, the multi-buyer or single-buyer insurance policy - we would have to extract the foreign manufactured product out of that container. We have programs such as our medium term coverage where packaged components - whether it’s a project finance type deal - the eligibility criteria is different. But on short-term it goes by the specific product.
So you can’t blend and say overall the container in value might be minimum of 51%, that would not work. And the risks to the exporter would be - when a claim is submitted and the invoice itemizes particular products then it could very well be that we detect that there are foreign products and we would have to exclude those from claim eligibility.
(Phil Pfeiffer): Okay. If I may, I’ve got a continuance of that question. How do we provide - we have products where the parts are made overseas but there is a bit of labor done here in the United States.
What kind of documentation is needed - we think it’s 51%. Is there official documentation that we need to prove that we have at least 51% of labor and parts and materials in that shipment, even though a portion of that would come from overseas?
Walter Kosciow: Can I ask what the product is or is that proprietary?
(Phil Pfeiffer): It’s not a problem. It’s furniture, so the wood portion of a dining room chair, for example, is finished and say it’s knocked down and it’s shipped - all the components of the piece is coming from China, but the upholstered seat pad is applied and affixed here in the United States.
Walter Kosciow: Is the lumber that the components are made from, is that U.S.?
(Phil Pfeiffer): It potentially could be - but that would be yes - it would be hard to determine - we could potentially find that out, but in most cases it would be either from Europe, Canada or the U.S.
Walter Kosciow: Okay. Essentially, we would simply ask the exporter to certify to their best expertise what the componentry and the percentages are.
(Phil Pfeiffer): Okay.
Walter Kosciow: Yes, certain products that we’re familiar with for instance, Ex/Im Bank does have an engineering department and they are very familiar with certain types of products. Say the computer industry for instance, a lot of the components are foreign manufactured, but assembled here and that.
So, the underwriters typically will access our engineers for the products the computer industry for instance, a lot of the components are foreign manufactured, but assembled here and that so the under liars typically will access our engineers for that type of expertise.
(Phil Pfeifer): And so the certification - we would just contact that regional office and get some instructions or authorization from that office and how to proceed with those questionable products?
Walter Kosciow: Correct. Yes. This is all part of knowing your customer and underwriting, you know, we basically ask you how you conduct you business and we learn about your product.
(Phil Pfeifer): Good. All right, thank you.
Coordinator: Our next question comes from (Ivan Ristandi).
(Ivan Ristandi): Hi, my company’s exporting overseas and we have probably been exporting to China insurance coverage. We use Euler, but several times they refuse us coverage. Will that be a problem in using Ex/Im Bank?
Walter Kosciow: Okay. Ivan, what you brought up is - some of the private sector insurers have become risk averse. They went from an extreme high capacity in the market to dramatically cutting back once the global financial crisis hit.
(Ivan Ristandi): Right.
Walter Kosciow: So, whether it’s a particular industry - as an example, automotive, paper industries, if you are selling like a news print or news paper companies.
There are certain industries where some private sector insurers are highly risk averse whether it’s industry or particular countries. Okay, now, Ex/Im Bank has not changed its risk appetite with regard to country or particular industries.
We’re looking at assessing the buyers’ ability to repay. So our risk appetite really has not changed. Ex/Im Bank is not mandated to seek profitability and I think private sectors reacted this way, again, because of anticipation of higher claims and again becoming more risk averse.
So, you know, I can’t tell you with great assurance that your transactions would definitely be approved, but at least we would give them the benefit and give you the opportunity to provide justification as to why the credit is - that there’s reasonable assurance of repayment.
(Ivan Ristandi): Okay, because we have - we use Ex/Im Bank two or three years ago, but at that time Ex/Im Bank policies took off all of the business, including domestic and that is a problem at that time with Ex/Im Bank with the time - because it takes time to get the approval.
So we choose Euler for domestic and for the international they are not good for Ex/Im Bank it’s better for international.
Walter Kosciow: Right.
(Ivan Ristandi): With your new policies for multi-buyer, we can separate, that’s good. So we’ll try again.
Walter Kosciow: Right, I’m just emphasizing that Ex/Im Bank does not offer domestic credit insurance just international. And as far as turn-around times, again, the smaller the transaction the quicker the turn-around time.
(Ivan Ristandi): That’s good. Thank you.
Walter Kosciow: You’re welcome.
Coordinator: Our next question comes from (Ed Densmar).
(Ed Densmar): Yes, we’re a capital equipment manufacturer. And traditionally we would get a rather large down payment and a progress payment which leaves a certain amount, obviously, to be paid - either at shipment, or what’s happening now in a lot of foreign countries - is that they’re asking us to - instead of leave 5% or 10% behind - or 30, 60, 90 days - they’re asking us to leave greater percentages of the total contract for collection later.
Let’s say for the sake of the question, suppose we had a 50% balance due on a contract when we shipped it, so in other words we would invoice for 50% of the original contract and leave it open for, let’s say, 180 days. Is the premium, the insurance, based on the total contract or on the actual receivable being invoiced at the time of shipment?
Walter Kosciow: It’s based on the receivable being - yes, it would be the 50% or on the amount you mentioned. It’s not on the entire transaction.
(Ed Densmar): Okay.
Walter Kosciow: Any down payment is excluded.
(Ed Densmar): Okay, all right. And if this were - if the single buyer would be what we would look at initially, but we may be more interested in the multi-buyer - if that’s the case because we export probably 70% or more of what we make.
If the premium is based simply on the receivables, that’s an advantage. We were under the impression it was based on the entire contract.
Walter Kosciow: No and I think you indicated that there’s a retainage or hold-back at the back end?
(Ed Densmar): Yes.
Walter Kosciow: Typically, we don’t cover those. It would depend on what the terms of that payment is. We possibly could consider covering the retainage, but it would require that the buyer issue a certificate of acceptance.
I’m not sure why they require that retainage, not knowing the extent of your business and why that practice is being used, but that’s just our general practice on retainage.
(Ed Densmar): Okay, but that’s - what is the difference between what you are stating as a retainage and our simply telling the customer, you know, you’re going to pay for 50% of this contract now and we’re going to allow you to finance or pay us over the period of the next 180 days the balance of the 50% due on the contract?
Walter Kosciow: Well, then just using that it sounds like you just described was a 50% down payment.
(Ed Densmar): Right.
Walter Kosciow: And 50% payable in 180 days.
(Ed Densmar): Yes.
Walter Kosciow: That’s your credit. It’s 50% on 180 day terms and we would insure that entire amount.
(Ed Densmar): Okay. All right.
Walter Kosciow: At 90% on single-buyer and 95% on multi-buyer.
(Ed Densmar): Very good. Thank you.
Walter Kosciow: You’re welcome.
Coordinator: Our next question comes from (Martha Aculla).
(Martha Aculla): Yes, hi. Our question has to do with a U.S. exporter that it sells services. And specifically divers to an oil company in Mexico and is for ocean, I guess, exploration. What would constitute a proof of service as since there wouldn’t be a bill of lading? What kind of proof would you consider?
Walter Kosciow: Good question. Yes, it would be the contract of sale - a services contract. If your company provides diving services, you will draw up a contract that indicates the conditions of the work to be done and how it’s to be repaid and we would utilize that as a primary documentation to support the insurance and any respective claim.
(Martha Aculla): Thank you.
Coordinator: Our next question comes from (Vas Kenyon). Please check your mute button.
Walter Kosciow: Hello?
Coordinator: Our next question comes from (Timothy Burn).
(Timothy Burn): Is there any way to insure a small contract where they have no experience and they have no financial statements?
Walter Kosciow: Okay, can you please repeat because the beginning of the question was cut off. Was the question can we cover a transaction where the buyer does not have financial statements?
(Timothy Burn): And you have no existing credit experience with them.
Walter Kosciow: Okay, a new buyer. Okay. And is there a ballpark amount that you’re considering?
(Timothy Burn): Three-hundred-fifty thousand, Latin America.
Walter Kosciow: Fifty thousand?
(Timothy Burn): Three-hundred-fifty.
Walter Kosciow: Oh, $350,000? Okay. The standard for $300,000 and less would be a credit agency report and a supplier reference.
If the exporter has no prior experience then you would have to ask that buyer to give you a company that you can contact and develop a trade reference that’s hopefully at a similar amount which would be at least half of the requested amount and on terms that are similar to yours. So I’m not sure what terms did you say, did you say 60 days?
(Timothy Burn): Yes.
Walter Kosciow: Okay. So, if they had terms of at least 30 or longer and an amount of say $150,000, $160,000 on high credit, that and a credit agency report may be sufficient even though you crept just above the $300,000 threshold where financial statements are required.
Now Latin America, you know, could be Chili which is a stronger country than a weaker country. We might be able or the exporter might be able to Google information for background that is useful on that buyer.
The credit report might be very substantive. It may give some highlights of financial statement data. So there are ways to mitigate, for instance, credit information that is just short. Okay?
(Timothy Burn): As a follow-up for Latin America, are there credit agencies that you prefer or recommend?
Walter Kosciow: Okay, again through our Web site, we do have a link to credit agencies that we recognize or accept. The most common practitioners are Dunn and Bradstreet International, Coface, which is a French company. But there are a number of other credit agencies that you can select from.
And again, if you contact our regional offices, they can also provide you with phone numbers or directory for contacting.
Coordinator: Once again, if you would like to ask a question please press star 1. (Larry Dolan), you may ask your question.
(Larry Dolan): (Unintelligible) are exporting to South American and to the Middle East. Currently, I use a letter of credit and I also - through my bank or delegated authority, I guess you would call them - I have a set up circumstances where I can discount the funds that may be due in 60 to 90 days.
The question is how might this program eliminate the need for letters of credit and/or otherwise provide financing - accounts receivable financing or possibly even P.O. financing?
Walter Kosciow: Okay, I think you’re describing a case of you’re receiving working capital through your lender, is that correct?
(Larry Dolan): Well no, not really, I do secure - the issue for me, of course, is securing the funds prior to shipping the product across the pond. So I do that through an enabling of the letter of credit.
Walter Kosciow: Right. Okay. I guess what I digress on because you mentioned delegated authority, so I thought that perhaps the lender was providing working capital through our guarantee program and then the lender had required you to be doing the transactions and letter of credit.
If that were the case or you don’t have working capital - you do know, I mean, you can substitute letter of credit with less secure transactions which you could insure through export credit insurance product and the bank should be able to finance against that insured receivable.
(Larry Dolan): So then I could take this in lieu of a letter of credit?
Walter Kosciow: Correct.
(Larry Dolan): I could give this insurance policy to my bank and they would lend against it.
Walter Kosciow: Right. And your foreign buyer may actually be happy that you’re doing so because it costs them some money to have a letter of credit open by the local bank. So besides that you might set yourself up in a more competitive situation by providing, say, open terms.
The buyer does not need to know that you have insurance on the receivable and the receivable that collateralizes with along insurance protection, again, should be - the bank should have an appetite to lend against that receivable.
(Larry Dolan): Can that be against a purchase order or must it be one that has been shipped together with a bill of lading and so forth?
Walter Kosciow: Yes. The export credit insurance is a post shipment product. So, yes, now some lenders - if, you know, they may decide that they will give you pre-shipment or pre-export financing based on a credit approval on a buyer and the post-shipment coverage. Now that would be up to the risk tolerance of the bank. Next question?
Linda Abbruzzese: Next question?
Coordinator: At this time I show no further questions.
Linda Abbruzzese: Okay, well, great. I think we come past the hour and I do appreciate everyone's' written questions. The speakers will help answer these questions after this Webinar. We have a log of every question, so we’ll get back to everyone with their specific question.
Everyone, please note that contact information of our speakers - Walter, do you want to - Walter’s phone number is 202-565-3649 and Walter, thank you very much for your presentation. It was very - it was an excellent presentation.
Thank you again. I’d like to let everybody know that for more information about Ex/Im Bank, you can get on their Web site and their Web site is listed below at www.exim.gov. Also, please check out the U.S. Commercial Services Website at www.export.gov for more upcoming events and Webinars.
I’d like to thank both of our speakers, Gus and also Walter for an excellent presentation. And also our next Webinar for this series is coming up on Tuesday, May 19 at 2:00 o'clock and if you have any questions, please let me know. I will be able to help you and thank you again for participating. We really appreciate it and good bye.
Coordinator: Thank you this concludes today’s conference call. You may disconnect at this time.
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