FTS-DOC ITA (US)
Moderator: Ms. Linda Abbruzzese
May 12, 2009
1:00 pm CT
Coordinator: Welcome and thank you all for standing by. At this time I would like to remind parties that your lines are on a listen only mode until the question and answer session at which time you may press star 1 to ask a question.
Today’s call is being recorded. If you have any objections you may disconnect at this time.
I will now turn the meeting over to Linda Abbruzzese. Thank you. You may begin.
Linda Abbruzzese: Thank you. Good afternoon for those of you joining on the east and the west coasts. And thank you for joining us for our webinar on Ex-Im Bank’s webinar Series. The first one on accessing capital to fulfill your export orders.
My name is Linda Abbruzzese. I am an 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 Bank. This webinar presented by Export Import Bank is the first of a series of three webinars which will focus on aspects of export financing.
This webinar will talk about accessing capital to fulfill your export orders. You will learn how Export Import Bank’s working capital loan guarantee can help you obtain commercial loans to facilitate the export of your goods or services and to increase your liquidity and improve your cash flow.
In this interactive session, our speakers will clearly explain how this loan guarantee will encourage lenders to make these loans enhance the value of your existing collateral base and offer generous advance rates of up to 90% for export related accounts receivables and up to 75% for export related inventory including work in progress.
These loans can be obtained simply and quickly from many pre qualified local lenders. In a moment, I’ll turn the presentation over to Augustine A. Grace who’s the seminar manager for the city state coordinator of the domestic business development for Export Import Bank.
Also speaking will be Kevin M. Taylor, director of business credit of Export Import Bank and (Tom Paradise), vice president of PNC Trade Finance of PNC Bank.
All speakers will be available at the end of the presentation to answer your questions and contact information will also be provided. For those of you who just joined, you can still log onto the webinar by entering the URL website and pass code per the instructions that were sent to you by email.
And to make sure everyone gets the most benefit from this afternoon’s webinar, please listen to the following information: You will be able to hear the presentation via your telephone and view it simultaneously via your computer.
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Now we will be taking written and voice questions for this afternoon’s webinar. We do invite you to type in questions on your screen as they occur to you during this presentation. Also up on your screen there is an icon on the top of the page with the letters Q&A and that stands for questions and answers.
When you click on the icon you can click and type in your questions any time during the presentation. We will compile the questions and present as many as time allows after the presentation. Typed questions which cannot be answered during the webinar due to time constraints, will receive personal answers via email.
And to ask a voice question, please press star 1 on your telephone. Now for those of you who just joined us and logged in, you can still join in our Internet conference.
And now I’d like to introduce live on line our seminar manager for the city state coordinators, the domestic business development for Export Import Bank, Augustine Grace. (Gus), thank you for joining us.
Augustine Grace: Thank you Linda. Good afternoon and thank you for joining this webinar, Accessing Capital to Fulfill Your Export Orders. As Linda mentioned, this is the first of a three part series that Ex-Im Bank will provide this month.
In this session you will learn how to use Ex-Im Bank’s working capital guarantee program defining into your exports. The next session we will focus on export credit insurance. And the final session we will talk about medium and long term buyer financing. We hope that you will join us.
Now Ex-Im Bank has its headquarters in Washington, DC. We have five regional offices and four satellite office throughout the United States. We work with lenders, brokers and city state partners which can be contacted in your local area. Please, please check our website, www.exim.gov for the partners. You will also find contact information and you can find product information and learn how we can help you finance exports.
Now I’d like to turn the program over to Kevin Taylor, director of business credit at Ex-Im Bank.
Kevin Taylor: Thank you (Gus) and good afternoon and I guess it’s still morning over there on the west coast so good morning to you. We’re going to start with who Export Import Bank is.
Ex-Im Bank is the official export credit agency of the United States government. We handle pre export financing as well as credit insurance and medium term and long term transactions. We can help lend exporters in these hard economic times with credit that they may not be able to get now that the markets have tightened up.
Also the working capital guarantee, which is the area that I’ve primarily worked with, is a pre export guarantee for borrowers that guarantees a lender in terms of getting working capital to export goods.
We’re going to get into the specific details of how a borrower can qualify for that and also how a lender manages those transactions. Also we’re going to get into PNC Bank as an example of a lender that significantly uses the working capital program. And lastly, we’ll go to questions and answers after (Tom Paradise) speaks.
Again, Ex-Im Bank is an independent agency of the United States government established in 1934. Last year we were doing in excess of $13 billion in business. We support U.S. exports in order to create and sustain U.S. jobs.
As (Gus) said, we are headquartered in the Washington, DC although we do have regional business development offices throughout the country. The benefit to exporters is Ex-Im Bank is the lender of last resort typically.
We’re coming into a position where a len - a borrower can’t get financing unless they have a guarantee or they’re trying to guarantee their payment from their foreign buyers. Of course this 90% government guarantee is very beneficial to lenders now who have credit constraints and capital constraints.
We provide financing for a foreign accounts receivable where lenders will typically not take that risk and also on a transactional basis, large and seasonal orders as well we can support. In terms of another major product within the working capital program is the standby letters of credit.
And what we’re talking about is performance guarantees where an exporter gets a - let’s say a $10 million contract and they get a million dollar prepayment and the buyer says, “Okay well, you know, we’ve given you the million dollars. We want a performance guarantee so that at the end of six months or eight months we’re going to either have the product or we get our money back.”
And so the lender can put a standby letter of credit in place for a million to cover that performance guarantee and the loan facility under the working capital loan will cover the standby letter of credit in case there was ever a draw.
And one of the big benefits and we get into this a little bit later is that the collateral requirement for the standby letters of credit is only 25%. And with the loan facility, again, it’s 90% of principle and interest. The guarantee is for the lender so this program doesn’t guarantee that the exporter is going to get paid by the foreign buyer.
This program - the working capital program - guarantees that the lender will get paid if the borrow is unable to meet their obligation and defaults on the loan. The next seminar you’re going to hear from Ex-Im Bank is going to be about short term insurance and then the last one will be the medium term product.
In those seminars, we’ll get into making sure that you get paid from the foreign buyer. There’s a credit insurance covering that risk. Now the loan facilities under working capital have to be fully collateralized. This is an asset based loan program.
So what that means is that if you have a loan you’re going to have at least monthly you’re going to have borrowing based certificates that are going to list your eligible accounts receivable and eligible inventory. And that’s the amount that can be borrowed up to the maximum amount of the loan facility.
The loans are generally one year but we can go up to 36 months but three years is our max. And that’ll depend on what type of other loan facilities the lender is providing the borrow because the borrow that’s being the exporter - borrower - I’ll say that interchangeably - but the borrower may have a domestic loan as well as an Ex-Im loan. And if the lender provides a three year domestic loan then they can go three years with the Ex-Im loan.
The other case where we would exceed 12 months is if there’s a transaction so that you as the exporter are getting financed and that transaction’s 18 months then obviously we’re going to want to do a term on the loan facility to cover 18 months.
And as I said earlier, the product covers the performance risk of the exporter. The performance risk of the buyer is another issue that we will cover in the next topic with credit insurance.
There’re three types of generally - transactions we do. The bulk of our transactions are revolving transactions. I’d say that’s about 80% of the transactions. And that’s where an exporter has a large number of foreign sales and so at the end of the month they’ll have maybe 10, 20, 100 different sales being covered by the loan facility and those sales would be supported by, you know, an account receivable aging with accounts receivable listed and the inventory schedule in the borrowing (base).
Transaction specific and transaction specific revolving tend to be a situation where, let’s say, an exporter has, you know, $10 million in sales and they - all of the sudden they get a big order for another $10 million and they still are doing the - they expect to do next year the same $10 million they did the year before plus the big contract, then we could come in and guarantee the performance of that exporter to build or provide this service related to the large contract.
And that’s what you see with the transaction specific. The goods must be at least 50% U.S. content to guarantee the entire transaction. And what we’re talking about is - and the simplest way to look at this is you look at the cost of goods sold related to a sale, and if it’s 50% more or U.S. cost, then the entire amount can be covered by the loan facility.
So that would be - the entire amount would be eligible in the borrowing base. Now if the amount is less then 50%, you can only include as eligible the lower amount. So if it’s 40% U.S. cost then you can only include the 40% as eligible percentage of those inventory or receivables in the borrowing base.
And one of the key aspects of this as well is that the non-U.S. content has to be incorporated into the product in the United States. If it’s - so if it’s - if a company does 60% of the work in the U.S. and then sends a product outside the U.S. and does 40% outside the U.S., then that 40% we could not cover because it has - this all goes back to U.S. jobs and how Ex-Im Bank is supporting U.S. jobs. And again, exports must be manufactured and shipped from the U.S. for backing into that U.S. content issue.
This screen is very interesting. It depicts what an exporter would look at with a borrowing base without an Ex-Im guarantee facility. Typical advance rates on raw materials, let’s say 20%. Zero percent for work in process and 50% for finished goods which for foreign sales may be even - that may be even optimistic because you’re really maybe only looking at 0 percent down the line there for export inventory.
And then for foreign receivables we do see lenders that will advance on letters of credit back, AR, or credit insured AR. But again, that rate tends to be lower.
For the Ex-Im Bank working capital program, we’ll allow up to 75% of any type of inventory as long as that’s related to an export sale and up to 90% for foreign accounts receivable. And you can see the big difference of the $760,000 without the Ex-Im Bank; $1.65 million with the Ex-Im Bank.
One of the keys with the eligibility of the foreign accounts receivable is Ex-Im Bank country limitation schedule which is on our website. It - you may see it as CLS. And the minimum requirement we have for the eligibility of accounts receivable will be based on the country limitation schedule.
For instance, sales to Germany can be open account uninsured. Open account - that’s without letters of credit, without credit insurance. But if a company is selling into China we require that the sales be backed by a letter or credit. And if they’re Chinese banks, we have a list of specific banks we’ll allow or that the sales are backed by credit insurance with Ex-Im Bank does provide.
The industries that we support - really we’ll support any exporter in any industry, whether it be service, wholesale and manufacturing. Some of the - we’ve listed some here the e percentage. We do a good amount of high tech. We have a good amount in the oil and gas. We also have a large number of wholesalers and you’re seeing that with the lumber and millwork and the frozen foods. We have a lot of frozen meat sale.
Again, any industry. Service companies can be a little trickier because you tend to be looking instead of just seeing inventory of finished goods in the borrowing base, what you see is net cost in excess of billing. And if you’re a lender or if you’re an exporter and you have a question on that, you’ll want to give us a call because that’s a little more complicated in terms of doing a borrowing base.
And I will - at the end you will have my name and number again to call me if you have specific questions. We will be taking questions at the end of the presentation.
In terms of eligibility of U.S. exporters, what we’re looking for is a reasonable assurance of repayment and we do have a number of exporters who may have lost money the past couple of years, exporters who are what I call financially challenged. And we are willing to look at those exporters.
We’ll look at what their story is, where they’re going from here, that kind of thing with their projection. But we want to see at least a minimum of one year operating history and that’s also a minimum of a year of revenue generating history.
That doesn’t mean the revenue has to be from exports. It could be domestic sales but we want to see that. We sometimes see R&D companies coming in and now they’re starting to, you know, export the products but they’re really just coming out of the R&D phase and that’s a little tricky because we want to see some of the exports going forward.
Debt serviceability - again, you’re borrowing base and your cash flow. That’s what we’re looking at.
Adequately capitalized relative to request the loan amount - the only thing I’d say there is we will tend to do loans that are a multiple of the equity so if a company has an equity of $1 million, you may have a loan that’s $2 or $3 million. So we’re open to that. So we’re - again, we have borrowers who what I would call financially challenged.
Business operations in the U.S. - again, we’re backing into this U.S. content. Ex-Im Bank is about U.S. jobs and we tie everything back to that. Now indirect exporters - what we’re talking about there is if a company sells a product and that product is sold to a larger company and that larger company actually is going to export - they’re going to take the goods that they buy from the smaller company to incorporate into a larger product and then that larger product will be exported.
And we can support those sales. The thing that we have to look at and the part that we have to sort of show is that the goods that are being sold to the larger company is going to be incorporated and it’s going to be exported. We have to, again, get back to showing that there is an export going forward with that.
In terms of the borrow profile, tight liquidity, negative cash flow, losses, erratic earnings. Again, this goes back to financially challenged. This doesn’t mean that if you made money the past two years we wouldn’t consider you for the guarantee; it just means that we are willing to be flexible and look at companies who have had problems. And again, we’re going to be looking at the stories that that company has on how they’re getting out of their problem.
The use of the financing - the use of the financing is to support the inventory and receivables which, what you’re going to see is advances to pay, you know, labor, material and overheads. Again, we can cover standby letters of credit and that would be to cover performance bonds, bid bonds. In terms of warranties and retainages, the warranty - what we’re talking about there is if there’s a letter of credit and goes from a performance period to a warranty period.
And we have limitations on what we can do on warranties. We’ll only go to 20% of the maximum amount of a loan facility up to $1.5 million. But the issue with the warranty is the goods have already shipped, they’ve been delivered, and that warranty letter of credit, the standby letter of credit in the form of a warranty is sitting out there and you’re - you know, the goods are already with the buyer so if there’s a problem and there’s a draw, you know, we have the issue of where do we go to collect against the collateral because the collateral is gone.
So we do a limited amount of those although we are - we’ve just increased the dollar amount to the $1.5 million that we’ll do.
Retainages - retainages are a hold back that a buyer will have so if you have a sale and the buyer, within their purchase order or within their contract with you states that 10% - you can invoice for the full amount but 10% will be held back for an additional 90 days. That would be a retainer and we only do that on a limited basis and that also - both of those items have to be pre approved by Ex-Im Bank.
In terms of paying off existing lines, that would mean if you have a line with a bank now and you have other bank that’s looking at putting up let’s say a domestic loan and an Ex-Im Bank loan in place, we can do a payoff on the existing line with the funds in order to enable exports to go forward.
On the performance bonds, again, we went into that a little bit earlier. The collateralized - the collateralization for that is 25% so if you have a million dollar standby, you only have to have 25%. We can go down to 10% in certain circumstances.
Let’s see, the term of the LC can’t exceed the term of the loan so if it’s a 14 month LC on a project you need to do a loan facility that’s 14 months. Pretty straightforward on that.
Warranty letters of credit - now warranties require 100% collateralization. And you’re saying, “Well yes, but the goods are already shipped. What are you collateralizing the warranty with?” Well it has to be collateralized with other inventory and receivables. And 25% of that has to be held in cash with the lender. Again, this says up to $500,000. We do up to $1.5 million now and we generally don’t go over 12 months with warranties where we will go over 12 months with just straight performance guarantees in the form of standby.
Eligible accounts receivable - we’ll go, again, 90% advanced rate. Now the eligible part is if 60 days past due. Sixty days past due isn’t 60 days from the invoice date. It’s 60 days from the due date. So if the term is net 30 days, then 60 days past due would be after the 30 plus the 60, so after 90 days that receivable would be no longer eligible in the borrowing base and it falls off.
If it’s credit insured, we can go out to 90 days with that. Also sales terms are generally 30, 60, 90 days but we can go up to 180 days if it’s an unusual circumstance or if it’s a type of industry where longer terms are typical.
On a retainage accounts receivable, we do the 25% advance rate. With accounts receivable due and payable outside the U.S., we’ll do 70 but sometimes we’ll go up to 90%. And what we’re referring to there is if an exporter has a subsidiary let’s say in Mexico, and a buyer in Mexico contracts with a Mexican then, you know, the receivable that we’re looking to get as collateral isn’t the receivable from the sub to the U.S. company but the - from the buyer to the Mexican sub.
In that instance we will require the equivalent of a first priority security interest in Mexico on those receivables. So these receivables due outside the U.S. or inventory located outside the U.S., when we do this, it tends to be on larger loans because there’s an expense.
We require legal opinions and we require, again, the filing outside the U.S. and so it’s a little more complicated and a little more expensive. We can do accounts receivable that are not in - due and payable in U.S. dollars but we have to approve that. If it’s a hard currency and it’s hedged, we’ll usually do a 90% advance rate.
If it’s a hard currency and the borrower isn’t hedging yet we’ll - we can do that but we’ll drop the advance rate and we will look at really any currency out there and manage that.
What’s ineligible would again be the inter-company receivables, receivables form military organizations. We have prohibition against supporting military sales. Now there are situations where we can support military sales but there has to be another reason - a dual use reason like for helicopters or humanitarian.
There has to be another reason but it - the other thing to, a military sale, it could be - you could be talking a military product and that would be prohibited but also a sale to a foreign military is also prohibited. It doesn’t matter what the product is. So if you’re selling frozen chickens to a foreign army, we could support that.
No receivables from prohibited countries - this again refers to our country - Ex-Im Bank’s country limitation schedule and there’re certain countries that we cannot support and those are what - when you look - if you get into the country limitation schedule you’ll see those under note 7 and they include Iran, North Korea, et cetera.
No LCs until goods are shipped - here we’re talking about - what we allow for advances are on inventory and receivables. And a letter of credit that the buyer’s providing is an enhancement to the sale but that letter of credit isn’t what we’re lending against. It’s actually the receivable.
So just having a purchase order and a letter of credit in hand isn’t enough for an advance under the loan facility. The borrower would have to be incurring costs into inventory or at the point that they invoice the buyer, then you could have an advance based on that but not just because they have an LC.
For service companies, again the disbursements are typically - it’s the labor, labor and overhead, and it’ll be net cost in excess of billings typically, assignment of the contracts required. We like to see three years audited or reviewed financial statements. We have a financial statement requirement.
Loans up to $1 million only require company prepared. One million to $2 million require compiled. Two to five million require reviewed. And over $5 million we require audited statements. But for service companies we like to see audit or reviewed a little higher standard for the financial statements although we are willing to look at a company and we have some flexibility there.
The new initiatives we have that were just approved in November by the Ex-Im Bank board of directors is the indirect exports. We were only doing up to 10% of that but now we’re allowing all the way up to 100% on the working capital line to cover indirect. And again, as I mentioned, the warranty letters of credit, we can do up to $1.5 million or 20% of the loan facility. And then foreign letters of credit, again, we can go down to 10% for the collateral requirement for those.
The fee for the loan facility is 1.5% of the total amount every year. Now we do allow a discounted fee and that can be based on whether the exporter meets four of seven ratios. At the medium (coretile) and we - you’d have to really look into our documentation to figure out how to calculate that. And we can work with you on that if you think you meet that, or if the sales are all backed by export credit insurance and/or letters of credit. And in that we also allow the discount to 1%.
Over 90% of our transactions are done by delegated authority lenders. What we have is Ex-Im Bank is granted certain lenders delegated authority to do the transaction and that delegate authority is different levels for different lenders. We have community level which is our lowest which are loans up to $1 million, so a community bank could qualify for that and then they could do loans and these loans could be done without even coming to Ex-Im Bank as long as the exporter meets certain parameters - the parameters we’ve already discussed.
And then we have different levels all the way up to super and super is $10 million. We have another different little program above that that goes $10 to $25 million. And these are loan amounts. But again, 90% of the transactions are done by delegated authority lenders.
Our transactions last year, we approved $1,381,000,000 in transactions. That was about 486. And of that $1,381,000,000 approximately $1,300,000,000 were done by delegated authority lenders. So again, the volume of our deals is done through these delegated authority lenders.
And one of the things that I would like you to take with you today is that if you’re looking - if you don’t have a lender already or if you have a lender, if you look on the Ex-Im Bank web Site and you go to the working capital area and then go to delegated authority lenders, there’s a list by state of the lenders in your area who are making these loans and who regularly make these loans.
And if you have a lender already, it’s an excellent place to start is with find that contact person at your lender to talk about these loan facilities. And if you don’t - if you aren’t working with someone who does this type of business, you can either have your lender call us or you can refer to these lenders and give them a call because they are interested in doing transactions. Last year our business was up 10% and this year our business is up 25% so we’re seeing a lot of additional transactions.
Again, my name’s Kevin Taylor. I work just with the working capital program at Ex-Im Bank. As you can see my number’s 202-565-3781. And although we are available for questions today, if you have something very specific and you don’t want to get into it on the webinar, you can give me a call directly.
And now I’d like to turn it over to (Tom Paradise) who is from PNC Bank and as I said earlier, PNC is a major user of the program. They’ve been our largest user for the past three years. And last year they did in excess of $200 million in working capital guarantees. And here you go. (Tom).
(Tom Paradise): Thank you Kevin. Good afternoon and I thank you for joining us today. And I would just like to speak about PNC Bank, how we use the program, how easy it is to use the program and to remove any myths out there regarding the U.S. government. Let me just give you a little background on myself.
I’ve been using the Ex-Im Bank working capital program for approximately ten years now. Six years I was an employee over at Ex-Im Bank in the business credit division as a colleague of Kevin. I left in January 2006 to manage PNC’s working capital portfolio.
A little bit about PNC trade finance group - PNC has been using Ex-Im Bank for the past 40 years and as Kevin said, we were the top user of the program for the last three years. Currently we have about $235 million in commitments, about half of that funded. We also utilize the structured buyer credit program which would be another component of the series. And I’m just going to bypass that.
We’re located right here in Washington, DC. We have three full time people working on the working capital program, one of them myself, and we’re actually seeking to hire another person so we’re seeing a lot of activity out there. PNC, along with other lenders, are in high demand. And we’re doing the best that we can to get the exports out the door.
I’m a pro - I’m an advocate of the exporter. I’m an advocate of Ex-Im Bank. The program does work. I can tell you that by experience. Anybody that you run into that has used the program; you can verify it with them. And if you get contrary evidence, give me a call and we can talk about it and I can probably explain why that experience wasn’t positive.
The rules of engagement for use of the program at PNC is we need to find an area in the bank to house the loan and generally that’ll be in two spots - either the corporate banking sector middle market or PNC business credit.
We’re located - business credit-wise, we’re located nationwide from Hawaii, Alaska, all the way to the East coast. Corporate banking through our Nat City acquisition, we go as far west as Indiana, Missouri, all the way to the East coast, as far south as Virginia. We do have some business in Florida and New England.
Our minimum loan size is approximately $750,000. We established that just as a benchmark. It’s not hard and fast. It’s just sometimes it’s difficult to get a loan approved within the program mainly because of one thing and that’s the program being an asset based lending program is subject to a borrowing base. Somebody needs to administer that. Somebody needs to collect that. However, if you’re on the cusp of $750,000, a little low, we certainly can talk about it and see what we can do for you.
Regarding the smaller business, we say that we’re limited to transaction lending, no revolvers, no inventory. Again, that’s just a benchmark. If we have a good transaction, we have a good borrower; we certainly will speak about what we can do.
Market activity - as I stated earlier, PNC’s the largest user of the working capital program going back from 2006. We’ve been able to really leverage the use of the program to working with Ex-Im Bank and taking advantage of the high demand of export finance.
Many of our deals are operated to our business credit unit. We have the balance of our deals through our corporate banking area. We also have super delegated authority. As Kevin said, that’s for deals up to $10 million. We also have fast track which is the space between $10 and $25 million. And amounts over $25 million, Ex-Im Bank would have to underwrite directly. We’ve done deals like that as well. So we’re interested in speaking about any transaction that is viable and bankable, whatever size.
Our competition that’s in there - JP Morgan, Chase, Wells Fargo, Bank of America, Silicone Valley Bank, Comerica, and there’re some other banks out there. They all do a good job. I’d like to think that we do a better job but they’re all knowledgeable users of the program and if PNC can’t help you I’d do the best that I can to find you a lender. It could be one of these names on the list; it could be another lender.
Our - the - our case study, Aquatech is - this is really a gem of a transaction for the exporter primarily. They took great use of the facility that allows 25% posting collateral for a letter of credit. By doing that they were able to preserve their working capital, they were able to expand their export markets, they were able to expand their sales.
And the one that I really like about this is that when we first started with Aquatech back in 2006, they had 100 employees. By September 2008, they had 300 employees. So the creation and maintenance of jobs through the use of the Export Import Bank working capital program is really the real thing.
The other item about Aquatech that I like is that it was an environmental transaction. Ex-Im Bank worked with us every step of the way and it suited the company’s needs to a T. We have - I could speak endlessly about other transactions that had similar experience but the one, like I said, about this one, the charm of this one was that there were actually 200 jobs that were created in Canonsburg, Pennsylvania - a small town outside of Pittsburgh, rural area. And it was just a great transaction for everybody involved.
And then (unintelligible). And I’d like to ask a question now, is what has your experience been with PNC Bank? Right. We have 82%, none; minimal - so our audience here has - well; now you know who we are. You certainly have, on our next screen contact information.
You can call me directly at 202-835-4507. You have my email as well. Or you can contact (Eric Edfors), my colleague, at 202-835-7051. We answer calls within 24 hours and we’re responsive to our emails. In the event that you can’t get in touch with any of us, there’re three names at the bottom there - (Alan Andrews), (Robert Count) and (Richard Stone), and they’d be more then helpful in answering any questions and directing you where you need to be. Thank you very much.
Linda Abbruzzese: Okay I believe that concludes the PNC presentation. I’d like to now begin with questions that we do have from our audience. And we’ll begin with the first question I have here. This is from (Obsula Obasa). Excuse me if I did not pronounce that right.
The question is are these loans country specific? And I’m going to put this on speakerphone so everyone can hear who’s on our panel.
Kevin Taylor: Yes this is Kevin Taylor responding to that. Well actually with the loan facility - the working capital loan facility, because we’re doing the pre-export financing, it actually isn’t country specific. So you have a U.S. exporter and we had last year - with the 486 loans that we had, we had exporters exporting to approximately 104 countries.
Where you’re looking at the export of the country risk is we handle that in two ways. One way is the country limitation schedule as I talked a little bit about before. If you go to the web - Ex-Im Bank’s website, you look under what we call the CLS or the Country Limitation Schedule, and what you’ll see is how we manage the country risk and we do it on a sovereign basis and also a private basis.
And again with the working capital, what you’re looking at there is there’ll be specific limitations on some countries. As I mentioned before, China is one of them where we require the sales to be backed by a letter of credit or credit insured.
So that’s one of the main ways we deal with country risks for these loan facilities. The other way is when we - when the lender under delegates authority or if Ex-Im Bank underwrites the transaction directly, we will evaluate the buyer. So we’ll evaluate the country risks specific to the buyer.
But what we find too is with a lot of the borrowers, is they actually export to a number of different countries so it’s - it’ll - you know, they may be exporting to Central and South America as well as Asia. So it’s - we look at it during the underwriting process but with always looking at the country limitations schedule.
And the country limitation schedule typically comes out twice a year so we adjust it and when we adjust it we announce it on the website, but that’s where you want to look at the country specific risks.
Linda Abbruzzese: Okay great. Thank you (Tom).
Next question here is from (David Deidrich).
What is the typical timeframe for underwriting and approval of a working capital under the Ex-Im program?
Kevin Taylor: Well okay - this is Kevin Taylor again - and I’m going to answer that from the Ex-Im Bank perspective and then I’m going to let (Tom) answer that from the PNC perspective.
From the Ex-Im Bank’s perspective, if it - well, 90% of the deals are done under delegated authority. And when it’s done under delegated authority, a lender delegated authority, that lender will underwrite that deal in whatever their normal timeframe is for underwriting a transaction.
And then what will happen if there’re any exceptions and I talked about earlier a number of, you know, really restrictions and what the borrowers have to meet to be able to qualify for these loan facilities. We actually have some flexibility in that.
And what happens is when the delegated authority lender underwrites a transaction and says, “Well, you know, we like this deal. We’ve underwritten it. There’re a couple of exceptions we need to cover,” they’ll come to Ex-Im Bank and we typically will turn around what we call a waiver letter or a side letter to cover just those exceptions. We can turn that around in less then two weeks.
But in terms of actually having an exporter sit down with a lender and underwrite one of these transactions from beginning to end, I’m going to refer that to (Tom) from PNC.
(Tom Paradise): Yes, the underwriting is - the length of time that it takes an underwriting deal is going to be a function of the financial information that is given to us by the borrower in addition to executing the Ex-Im Bank working capital application.
So beginning till end to obtain any accommodations that we would need from Ex-Im Bank and the exceptions including legal documentation, review legal documents, and funding alone, I would say about maximum 45 days.
Underwriting is fairly quick. The application is done concurrently as the underwriting is done. What I do is I identify the exceptions, engage Ex-Im Bank and try to induce them to issue the exceptions.
Once the underwriting - there’s a cardinal rule is we don’t engage a lawyer until the underwriting has been completed and the deal has been approved.
Linda Abbruzzese: Let’s go to the next question here from (Theodora) - thank you, by the way, both (Tom) - (Theodora Taxiera) - we are already insured with Ex-Im Bank to overseas accounts, can we still get a working capital loan?
Kevin Taylor: Absolutely. Yes, that’s the - again is - we talked a little bit about earlier, the working capital loan is guaranteeing the lender will get repaid if the borrow has a problem.
What the credit insurance does, and again that’s going to be Thursday, we’re going to have another webinar, Ex-Im Bank webinar - and it’s going to cover the credit insurance, but what the credit insurance does is it covers the non-payment by the buyer.
And so if you have credit insurance already and you get a working capital loan, you’ll actually get a discount on the working capital loan as well as our fee goes from 1.5% on a working capital to 1% of the loan amount and the - we also offer a discount on certain of the short term credit insurances.
So you can get a discount with the broker on the credit insurance if you get the working capital. And one of the advantages - and sometimes people say, “Well why do - if we have the credit insurance, we’ve covered there, why do we want the working capital?”
Well the working capital will get you the funds on the inventory as well - advances on your inventory as well, and your receivables if you’re not already getting advance funds on your receivables.
(Tom Paradise): This is (Tom). I get this question a lot from borrowers.
What should I use, the insurance or the working capital program? The question you really need to ask yourself, are you trying to mitigate the company from catastrophic loss? If the answer is yes, then you want the insurance.
If you’re in need of working capital, most banks will allow export AR, that’s insured to be lent against in this domestic borrower base. However, that advance rate will probably be no greater then 85%. There’ll probably be limitations taking into account deductibles and there may be other caps that a lender may put in.
If you’re seeking working capital and you’re using insurance to gain working capital, the export - the Ex-Im Bank working capital program is going to get you the most availability, period. Advance rates are more aggressive. The caps will - I won’t say be non-existent but they certainly won’t be at the level that will be instituted on the domestic side.
And PNC, and I’m sure any other lender that’s out there would be able to show you what a cost - what the cost would be and what the availability would be if you were to use either one of the two or we do have some cases where they use them both. They need the working capital and they do want to insure themselves against loss or at least in certain countries and buyers.
Linda Abbruzzese: Great. Thank you (Tom) and thank you Kevin. Our next question here is from (Franklin Akenkoyee). Excuse me for not pronouncing that correctly if that’s the case.
What is your country limitations to Nigeria, Ghana and South Africa? How successful has the Ex-Im Bank program been in the identified countries?
Kevin Taylor: This is Kevin Taylor.
Well let me start by staying that Ex-Im Bank has a special initiative for Sub Sahara Africa. And we actually have some people that work specifically with these countries. And as you - if you are looking to export to these countries or if you do business in these countries, you can call me and I will put you in touch with the people at Ex-Im Bank that specifically deal with the business development in Sub Sahara Africa.
In terms of the working capital loan, so that would - you would look at our country limitation schedule again, which is on our website and you’re going to see under Nigeria, Ghana and South Africa that we will allow open account uninsured so we’re open under the working capital, yes.
But the - but having said that, keep in mind that we also have the credit insurance. So when you’re - if you’re an exporter and you’re looking at exporting to these countries or any country outside the U.S., I mean, the export credit insurance is a significant product because you need to make sure, you need to ask yourself, “If I didn’t get paid on this sale, you know, what would that do to my financial situation?”
And if the answer is it would be detrimental, then you need to look at the credit insurance to cover that risk. But again, I would point - when you’re looking at specific countries I would point you to the country limitation schedule and to keep an eye on that.
And to skip into some other initiatives we have at Ex-Im Bank - and we’ll get right back into the question - we also have environmentally beneficial exports. We have some business development people that deal with those products and there are some special initiatives with that in terms of long term funding and things like that that we can do.
So if you have those - if you’re selling those types of products or services that are environmentally beneficial, again, give me a call. This is Kevin Taylor speaking - and I will put you in touch with the people at Ex-Im Bank that can talk about all the different products that can benefit you.
And let’s go to our next question.
Linda Abbruzzese: Okay, this is from (David Deidrich). If AR - I think accounts receivables and inventory are already pledged as collateral against a working capital loan and company’s primary lender, can it also be pledged at Ex-Im as collateral against increased working capital?
Kevin Taylor: Yes. Again Kevin Taylor. If you already have that collateral pledged then we’re not going to be able to lend on that, okay? What’s going to happen is that we have to have a first priority security interest in those export related accounts receivable and inventory.
What you need to look at is if you have a lender who already has a loan facility with you and who’s providing funding based on those receivables and inventory then, you know, the question is can you get more availability with an Ex-Im line? Can you - or do they just have a lien on that collateral and they’re actually not lending directly against that?
Because what we can do is depending - we can work with that lender or possibly another lender and you can do what we call carve out. You can do a carve out of the export related receivable and inventory and we will provide a working capital loan guarantee through either your primary lender or another lender and then you could actually have funding against those receivables and inventory.
(Tom Paradise): I would - this is (Tom) - I’d like to add to what Kevin said. The carve out that he’s referring to would be governed by an inter creditor agreement where the inter creditor’s agreement would clearly state who has the first priority security interest in the collateral.
In PNC’s portfolio we do have loans where we have inter creditor agreements. Our experience has been positive and it’s certainly something that PNC would entertain doing and I suspect the other lenders out there as well.
Linda Abbruzzese: Okay, let’s go to our last written question and then we’ll open up the line for voice questions -from (Janet Enriquez) who would like to know how much capital we or the company needs in order to be considered for support.
Kevin Taylor: The answer to that is it depends. And what it depends on is the type - the amount of loan facility you’re looking for. As I said earlier, when we look at loan facilities it tends to be a multiple of capitals. So if you’re looking for a million dollar loan and you’ve got $500,000 in capital or $300,000 in capital, that’s not an unusual circumstance.
If you have $500,000 in capital and you’re looking for a $5 million loan, well that’s probably pretty unlikely. So what we’re looking at is your dollars of sales, your - you know, the projection of your exports, the level of equity that you have and also the loan amount.
But I would - you know, again I say it depends because if you look at wholesalers and you look at manufacturers, we’re going to see a lot higher level of equity to debt in a manufacturer then we are going to see in a wholesaler who’s going to have a - typically a thin capital structure. So it just depends.
The key is to, again, I’ll refer you to the website where you look at the list of delegated authority lenders and if you’re already dealing with one of these lenders, you talk to that point first and about the working capital or, again, that’s listed by state so you can find a delegated authority lender within your state and talk to them about, you know, your capital requirements and how that would fit.
And I guess we’re going to - there was one question. We’re going to go -take one more question from the written and then we’re going to go to the verbal questions.
Linda Abbruzzese: Okay. This is from (Martha Altula).
If you could please review Libya and how to obtain a letter from the government support.
Kevin Taylor: Yes, with Libya when you - again, there’re a lot of country limitation questions we’re getting here and that’s good because it certainly can drive what kind of loan facility you get.
When you’re looking at Libya, what you’re seeing is actually for a working capital is open. That reference to a letter from the government support, that would refer to I believe the sovereign transaction, long term transaction where we - where a letter from the government is required to - for Ex-Im Bank to support a transaction.
But from the working capital side of the deal, if you have a sale to Libya, we’re open for those transactions. And if you - if you’re in - if - (Martha), if you’re an exporter and you’re looking at specific transactions to Libya, again, you can call me up and we can get into exactly how that would fit but I would refer everyone to - again, to this - the website. And if you have specific situations you know my number - she just brought that up again. This is Kevin Taylor in the business credit division.
And now I think we’re going to turn to verbal questions if we have any.
Linda Abbruzzese: Yes, operator, if you could please open the line.
Coordinator: Thank you.
At this time if you’d like to ask a question, please press star 1 on your touchtone phone. You may record your name and I will announce you prior to asking your question.
If your question has been answered you may withdraw your request by pressing star 2. Once again, press star 1 and record your name if you have a question.
And I’m showing no questions at this - oh, I’m sorry. We have two now.
The first is from (Herman O’Maya). Your line is open.
(Herman O’Maya): Thank you very much.
I’m (Herman O’Maya) from St. Petersburg. I have a small company and I am looking to do exports of electronics and electrical equipment to Norway. And I need to find out; being a small business, what sort of advantages or loans can I obtain for Ex-Im Bank for this purpose.
Kevin Taylor: Well, again, it’s Kevin Taylor.
Well what you’re looking at is, you know, working capital could fit those needs. And that’s, you know, exporting to Norway certainly isn’t a country limitation issue there. And what you would be looking at with a working capital loan is Ex-Im Bank would you would work through a lender and Ex-Im Bank would guarantee the loan, again, at 90% and that loan would enable you to, you know, pay salaries, pay overhead, buy raw materials.
If you’re manufacturing electronics, you know, obviously any of the costs going into the manufacturing, but if you’re buying the electronics and you’re exporting them, what we’d have to do is if you - we could get that into specifically to decide, but what we would have to do is make sure that the electronics that you’re exporting have at least 50% U.S. content.
And this is one of the issues we run into with electronics is sometimes it’s very difficult to determine where even, you know, the total U.S. content of electronics are because even though you may buy it in the United States from a company, they may have manufactured it outside of the United States.
So I think the complication there we’d have to work through would be what type of electronics and where are they manufactured unless you’re doing the manufacturing and then it makes it obviously a lot easier to make a determination.
The place for you to go to see where you can get a loan would be - and if you’re in Florida, you would look under the delegated authority lenders in Florida and you would look for, you know, the banks in your area,.
Now when I say that, some of those reference numbers are going to be - let’s say you see a bank. Let’s say you were looking at PNC Bank. That may have (Tom Paradise) at the 202 area code but that doesn’t mean they won’t handle your business down in Florida. It just means that the main contact for working capital is at a different location.
But also the size of the loan facility will make a difference on the lender but if you want - if anybody wants to call me and tell me about their business and what type of loan facility they’re looking for, I would generally give them three references of specific lenders that will handle your type of loan because some lenders will get a - you know, just want to look at larger loans and some lenders, you know, will - as long as it’s within their area, will look at smaller loans. So it just depends.
And we’ll go to the second question.
Coordinator: The next is from (Michael Phelp). Your line is open.
(Michael Phelp): Hi. I’m an executive with an engineering company in Houston and we’re in the process of putting together a very detailed proposal for exporting basically technology.
There is - our firm, which is an engineering company, a law firm in Houston, and a large financial think tank sort of outfit that are being put together as a consortium to hopefully become the consultants for a very large technical complex we built in the Republic of Cypress.
And in a recent meeting that I had with an Ex-Im gentleman here in Houston during OTC, he talked about being able to put together a package that the Ex-Im Bank would basically help with where we can come up with what our price is but then perhaps also offer some sort of financing to the client that might make our deal more attractive.
I’m just kind of interested in exploring a little bit more on how would I proceed to make inquiries about such a thing.
Kevin Taylor: Yes, what you’re looking at there - I’m not sure who you talked to but what you’re looking at there is you would be looking at two parts. The first part would be is if you needed a working capital loan and what we tend to see with engineering firms or architectural design, that kind of firm, is what you’re looking at is salary specifically again and the financing of that, your costs, and your costs to put together your proposal.
Now on the other end, what we’re referring - what they were referring to you is buyer financing. So what you may be able to offer that foreign buyer is a medium term type financing that Ex-Im does so you can actually have, again, both sides of the transaction.
Ex-Im Bank in support of a working capital loan facility to the U.S. kind of exporter, and then Ex-Im Bank can also support which - what we’re referring to here is what we call a medium term loan facility to the buyer.
And then - we’re actually doing a presentation June - I’m sorry, May 18th. Is that - yes. May 18th - no May 18th is Monday, isn’t it? May 19th, I apologize. Tuesday, May 19th and that presentation’s going to be on this medium term product.
But basically the medium term product, where there are similarities is that it’s a guaranteed product that Ex-Im Bank would work with a lender to providing - and then Ex-Im Bank would provide a guarantee based on the purchase but you’ll run into the same U.S. content issues, the country limitation issues, but that absolutely can be done.
And if you - again, if you want to talk specifics about this and if you’re going to participate in the webinar next Tuesday you can talk first-hand with someone or you can call me after this and I can put you in contact.
The medium term product tends to be based on country risk. So the people that we have at Ex-Im Bank that underwrite these transactions, that work with these transactions, it depends - it is usually based on regions so you have your sens - your Americas group, you have your Asian group, et cetera, et cetera. But we can get you more specific information later.
(Tom Paradise): Yes, this is (Tom).
PNC is very familiar with Cypress and the country risk there. It’s just something to keep in mind if you’re ever interested in contacting us. We’d be more then happy to help you. And you have our contact information.
(Michael Phelp): Right.
Kevin Taylor: Thank you. And we can go - if there’s another question on the line.
Coordinator: Yes, we have one more from (Liliana Texara). Your line is open.
(Liliana Texara): Yes, I have actually two questions.
The first one is being the CFO of the company, can I do the process myself whereas - or do we need a broker? And the second one is, we have - we actually have two companies. One is of a distributor. We do - we’re into a sports nutrition product. And one of them is a distributor. The one that I have insurance for overseas accounts. And the other one is the manufacturing part where we have - our other company manufactures for nutrition products.
But we have - as the manufacturer we’ve been established for two years already. Can we still get working capital loan if we just have two years?
Kevin Taylor: Okay, I’ll start with the first question. In terms of - the broker - you would get - you can get - for the credit insurance, you can come to Ex-Im Bank directly.
What’s typically done, I believe, is that exporters go to brokers and the brokers - because the other thing, too, is keep in mind Ex-Im Bank, the lender of last resort.
And in terms of credit insurance, you go to a broker they can price different -they can price private sector insurance along with Ex-Im Bank insurance. And I’m not trying to push private sector insurance to you but we are not here to compete with the private sector, so you’re going to want to price probably through a broker in terms of credit insurance.
In terms of working capital, as the CFO, you’re going to want to call one of these lenders and deal with the lenders - the delegated authority lenders - directly. You can call me and I can put you in touch with some lenders or you can use the website to get to those lenders.
But you don’t go through - you don’t typically go through any type of broker of financial consultant or investment banker to get to the working capital program. All right?
Now the second question, it sounds like you - there’re two companies here that are affiliates. One is the - really is the trading company for the manufacturer, maybe there’re different ownerships and things like that.
In terms of working capital, we would have to know what the ownership structure is because we would obviously - if one company’s manufacturing and the other company’s really distributing or selling the product and maybe selling other products, we would have to look at which company where we would come in in terms of the working capital loan.
And it could be either one and I’m not sure without, you know, getting into the details. And again, you can call me about specific details. But the key is that if it’s credit insurance, you’re more then likely going to go to a broker and deal with them. And then if it’s working capital, you want to get to a lender because that does exit out your process.
(Liliana Texara): Okay.
Kevin Taylor: Thank you. Is there any other questions?
Coordinator: I’m showing no questions at this time.
Linda Abbruzzese: Okay well great. Well thank you. Then that concludes our webinar. I’d like to let everyone know, remind them that the contacts are on your screen so please note all of their names and their numbers as well as emails.
Also please check out Export Import Bank’s website at www.exim.gov as well as the U.S. Commercial Service website at www.export.gov for more upcoming events and webinars.
Once again, thanks to all of our speakers and thank you for our participants.
Thank you and good bye.
END