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Medical Equipment Initiative Guidelines

Guidelines for Submitting Applications for the Medical Equipment Initiative (MEI)

The MEI is intended to explore alternatives for the financing of medical equipment to foreign borrowers that do not meet medium term credit standards. If the transaction cannot be considered under the regular medium-term program, it is a candidate for the MEI. The three most common candidates will be: 1) borrowers that are established entities but Ex-Im Bank is not comfortable with on unsecured terms but feels the borrower has adequate cash flow; 2) borrowers that are newly formed and do not have historical credit data; and 3) borrowers that represent exceptional risk.

The following general approach should be used when submitting applications for financed amounts of up to $5 million.

Step 1. Can the transaction be considered under the regular medium-term program? If so, that approach will be used. The basic structure calls for the transaction to go forward on an unsecured basis, using the following general ratios, along with strong supporting credit information, as the primary criteria:

1. Positive operating profit for the last two fiscal years
2. Positive net income for the past two fiscal years.
3. Positive cash flow from operations in the last fiscal year.
4. EBITDA/Debt service is greater than 1.5 for the upcoming fiscal year.
5. Total Liabilities/Tangible Net Worth is less than 1.75.
6. Ex-Im Bank total exposure with the buyer is less than 40% of net worth.

Note: it is not necessary for the buyer to meet all of the criteria listed above but "mitigating factors" should be proffered for the missed criteria.

Step 2. If there is a sound borrower, but Ex-Im Bank and/or the applicant do not feel comfortable with an unsecured transaction yet believe that the buyer has or will have adequate cash flow for the purchase, the transaction can be strengthened in one or more of the following ways: (a) guarantors; (b) liens and/or side collateral; (c) vendor agreement, whereby the exporter may assume certain obligations in the event of a repossession; (d) exporter risk participation; (e) other "innovative" approaches.

Step 3. If the borrower is a newly formed company, or the transaction is exceptionally risky, the following guidelines should be used to determine if the transaction qualifies for consideration under the MEI.

1. Proper Transaction Structure. The application should provide the ownership structure of the borrower and guarantors showing all individuals and entities with an ownership interest in the project. In general, the parties enjoying the benefits of the credit should be obligated for the repayment. The transaction should be structured with an eye towards avoiding venture capital situations of a speculative nature. Normally, the principals will be required to guarantee the debt if they maintain a significant equity interest in the venture, either directly or indirectly.

2. Management should be experienced in the hospital/medical field.

3. Equity Investment Required of the Principals. Equity (as opposed to debt) should be an integral part of the financing structure. Equity calculations should not include such items as land contributions, stock subscriptions or other capital contributions not yet received, or intangible equity investments. A 25% to 30% minimum equity maintenance reserve is desirable as a significant enhancement to the quality of the credit.

4. Credit History. The following elements should be included:

4.1 Credit Reports are required for the borrower, guarantors, and all principals. There should not be a history of suits, liens or judgments. If such a history exists, comment should be made as to the circumstances of the negative credit history.
4.2 Provide bank references demonstrating the high credit history of the principals, borrower or guarantors. In general, the borrower or one of the guarantors or principals should have obtained credit in the general magnitude of the financing request. If none have obtained such credit amounts, then summarize the highest credits obtained. The credit history should include:
2.1 Creditor name and address
2.2 Date of the credit, high credit amount, current balance.
2.3 Payment history and timeliness
2.4 Collateral, if any
2.5 Guarantors, if any.

5. Required Financial Information. The financial presentation should include the following:

5.1 Financial Statement Requirements:
1.1 Where the participating entities (borrower and guarantors) have no operating history, the minimum requirement is an opening or pro-forma balance sheet for all participating entities.
1.2 For participating entities with less than three years operating experience, the financial statements should cover the fiscal periods since the entity was formed plus the latest interim statement.
1.3 For entities with at least a three-year operating history, the financial statements should include the past three years plus the latest interim statement.

5.2 Quality of the Financial Statements.

2.1 For transactions up to $1 million, high-quality audits and high-quality supporting financial information will strengthen the application.
2.2 For amounts of over $1 million to $5 million, the application will be significantly enhanced.
2.3 For amounts above $5 million, high-quality audits and financial information will be expected.

5.3 Cash Flow Projections.

3.1 Provide detailed cash-flow projections for the life of the Ex-Im Bank financing. The projections should include balance sheets, income and expense statements, statement of cash flows, and a reconciliation of equity, all on a monthly basis.
3.2 Provide an assumption statement for each revenue and expense item in the income and expense statement, and explanations for changes in equity not attributable to earnings changes.
3.3 The revenue assumptions should include comment on specific revenue sources, such as the following: (a) Revenues from hospitals or other healthcare providers, (b) Private reimbursements, such as insurance companies or other health plans, (c) Patient cash or self-payers, (d) Public health care reimbursement, such as social security or other programs, and (e) non-patient income such as equipment rentals.
3.4 Describe the reliability of the revenue source projections.
3.5 For existing hospitals, there should be a focus on the source and quality of receivables.

5.4 Anticipated Future Expansion. Discuss anticipated future expansion, including the amount and source of anticipated additional debt and equity.

6. Discuss the Adequacy of the Collateral.

6.1 Collateral Valuation. Use industry product guides and other sources to determine the approximate value of the collateral at least once annually during the life of the Ex-Im supported financing.
6.2 Lien quality. To what extent are liens perfectible and enforceable in the country of the applicant buyer? Note: The cost of recording and perfecting a lien shall be borne by the participants.
6.3 Repossession cost. What factors influence the cost of repossession?

7. Discuss the Overall Economic and Financial Feasibility of the Project. Influencing factors should include:

7.1 Overall business conditions in the applicant market.
7.2 Availability of medical equipment and services in the applicant market.
7.3 The likelihood of demand growth for usage of the equipment financed. Influencing factors might include: population of the city, proximity to local hospitals, mix of private insurance versus public reimbursement, size of the facility, experience of the principals, and local insurance company reimbursement data when available.
7.4 Unique position of the principals in the market.
7.5 Address the position of the competition. Focus on the capacity of the market area to absorb the offered service.
7.6 Other factors that may be relevant to the overall feasibility of the project.

8. Exporter Enhancements. Describe the extent to which it is possible for the exporter to participate as follows:

8.1 Retention of Risk. State to what extent, if any, the exporter (or bank, for bank-originated credits) would be able to assume 10-30% of the risk.
8.2 Applicant repossession participation. State to what extent the exporter or bank is willing to repossess the equipment in the event of a default?
8.3 Re-furbish the equipment. State to what extent it is feasible, and to what extent the exporter is willing to refurbish the equipment in the event of a default.
8.4 Re-marketing the product. State to what extent the exporter would be willing to re-market the equipment on Ex-Im Bank=s behalf in the event of a default.

9. Start-up Projects. Start-up projects should include a feasibility study from an internationally recognized consulting firm, and evidence of participation by experienced hospital managers, plus the above information.

10. Conclude with a Balanced Recommendation. Discuss the positive and negative aspects of the credit and provide the basis for the recommendation.