Title:
1Financing Water and Wastewater Treatment
Projects
- Craig OConnor
- Environmental Liaison Officer
2U.S. Ex-Im Bank
- Independent agency of the U.S. government.
- Established in 1934 to finance the export sales
of goods and services produced in the U.SSince
1934, has supported over 400 billion in exports.
- Supports short, medium, and long-term financing
to creditworthy international customers both
public- and private-sector working capital
guarantees to U.S. exporters. - Products include Direct Loans, Guarantees, Export
Credit Insurance, Working capital Guarantees,
Tied Aid Fund. - No minimum nor maximum project size.
- Special initiatives for environmental exports,
small business, and lending directly to
municipalities.
3Ex-Im Bank Value Proposition
- What does Ex-Im Bank bring to the table?
- Ability to directly extend credits to private-
and public-sector buyers, in-country utilities,
equipment dealers, or government agencies - Ability to support small projects No minimum
project size helps smaller in-country deals - Environmental Dynamics has used Ex-Im Bank to
extend a 2,000 credit line to an overseas
customer - Ability to support loan repayment terms of 10
years - Ability to support interest rates based on small
spread over commercial banks cost of funds (U.S.
LIBOR) - Ability to help leverage USAID, GEF and other
donor funds
4Environmental Exports Program
- Support for environmentally-beneficial exports,
including wastewater treatment plants, mandated
in Ex-Im Banks Charter. - Ex-Im Bank has Environmental Standards and
Guidelines applied to each project considered
under its Loan and Guarantee Programs. - Environmental Exports Program Consists of
pro-active business development and enhancements
to existing Ex-Im Bank programs. - Environmental projects are offered enhancements
- Maximum OECD repayment term for Long-Term Loans
and Guarantees of 10-15 years after project
completion. - Capitalization of interest during construction.
- Up to 15 local cost support within the U.S.
scope of supply. - RESULTS Transactions approved under the Program
grew from - 13 in FY 1994, to 71 in FY2004, totaling
over 1.5 billion.
5Export Credit Insurance
- Enables U.S. exporters to offer short- and
medium-term credit directly to their customers. - Export credit is an attractive substitute to
cash-in-advance, letters of credit and costly
local bank financing. - Using Ex-Im Bank to insure a letter of credit
instead of paying bank confirmation charges is
usually more cost effective. - Example Insurance costs 0.11 or 110 for a
100,000 sight letter of credit vs. 2,500
minimum bank confirmation charge. -
- Supports repayment terms up to 180 days beginning
from date of importation of the goods capital
goods terms of 360 days-7 years. - Only an invoice of the sale needed for short-term
credit Ex-Im Bank provides a promissory note to
document medium-term credits. - Insurance lowers reserve requirements for
commercial banks.
6Case Study Aquamatch, Inc.
- Aquamatch, Inc. of Laguna Hills, CA is using
Ex-Im Banks Short-Term Multi-buyer Insurance to
offer open account credit terms to buyers in
Mexico, Saudi Arabia, Turkey, Italy, and the
Philippines, among others. - Aquamatch, Inc. is a small business manufacturer
of water purification products that also provides
services for the design and installation
wastewater treatment plants. - Aquamatch, Inc. sought Ex-Im Banks Insurance to
be more competitive in granting open account
credit terms which are routinely offered by
their European competitors. - With Ex-Im Banks Insurance, Aquamatch, Inc. is
able to assign its insured receivables as
collateral for an SBA loan to further grow its
business.
7Case Study Monarch Separators
- Monarch Separators Inc., a Houston, TX, a small
business with 10 employees is using Ex-Im Banks
Short-Term Insurance to expand their export
sales. - Monarch Separators Inc., manufactures oil-water
separation equipment as well as other pollution
control equipment. - Using Ex-Im Banks Insurance, Monarch is able to
offer open account credit terms of up to 180
days to customers such as Pemex, PDVSA, and China
Petroleum Company. - Monarchs open account terms replace costly
local bank financing and payment by local bank
letters of credit. - Monarchs sales are expected to INCREASE by 1
MILLION next year by using more aggressive credit
terms.
8Case Study US Filter in China
- U.S. Filter required a confirmed L/C to support
their sale of 520,000 in water treatment
equipment to a buyer in China - Chinese banks do NOT allow their L/Cs to be
confirmed - In order for a U.S. bank to confirm an L/C, the
issuing bank must request confirmation in the
original L/C - U.S. Filters bank was unwilling to provide a
silent confirmation a commitment to pay the
exporter under the L/C without actual
confirmation because it would payment risk of
the issuing bank. - The Short-Term Single Buyer Policy provided 95
commercial coverage, 100 political coverage to
U.S. Filter against the risk of default of the
L/C issued by China Construction Bank. - Insurance costs 0.08 or 80 for a 100,000
letter of credit - With the Insurance in place U.S. Filter now in a
position to assign the L/C to its bank for
immediate funding.
9Short-Term Credit Process
- 1. The U.S. supplier submits the application
along with the required information to establish
a credit limit for the foreign customer to Ex-Im
Bank. - 2. The information requirements from the foreign
company for credit limits are as follows - 10,000 credit a favorable trade or bank
reference. - 10,000-50,000 credit a current credit report.
- 50,000-100,000 credit a current credit report
plus a favorable bank or trade reference. - Over 100,000 credit a current credit report,
latest 3 years financial statements, and
references. - 3. Ex-Im Banks Loan Officer analyzes the
application and makes a decision on the amount of
credit to be supported.
10Medium-Term Guarantee Process
- 1. The Guaranteed Lender bank submits the
application for Final Commitment under its Master
Guarantee Agreement along with the required
information to establish the credit limit for the
foreign customer. - 2. The information requirements from the foreign
company for Medium-Term credit limits are as
follows - A current credit report.
- A current commercial bank reference.
- Latest 3 years financial statements interim
statements if the latest years financial
statement is older than 1 year. - Note audited statements required for credits
over 1MM - Copy of the export contract.
- 3. Ex-Im Banks Loan Officer analyzes the
application and makes a decision on the amount of
credit to be supported.
11Medium-Term Credit Standards
- Positive Operating Profit over last 2 years
- Positive Net Income over last 2 years
- Positive Cash-Flow-From-Operations (latest year)
- EBITDA/Debt Service greater than 150
- Total Liabilities/Total Net Worth less than 175
- Ex-Im Bank Exposure/Total Net Worth less than 40
- Borrowers that meet these standards very likely
to be approved. If the borrowers misses one or
more of the standards, Ex-Im Bank will conduct
further analysis of the borrowers business to
determine whether to grant approval.
12Loan Guarantee Program
- Guaranteed Loans made by commercial banks (U.S.
or foreign) to a foreign buyer with a 100
unconditional repayment guarantee from Ex-Im Bank
- Guarantee covers 85 of the U.S. content of the
transaction. - Negotiated interest rates, usually a floating
rate based on spread over 6-month U.S. dollar
LIBOR rate - Loan fully transferable, can be securitized
- Banks often finance the 15 required cash payment
- Guarantee available in major foreign currencies
13Case Study Nafin
- Nafin - a Mexican Government development bank
that is also a partner bank with Ex-Im Bank under
the Master Guarantee Program used Ex-Im Banks
Loan Guarantee Program to provide a PESO loan to
Industrias Islas S.A. of Nuevo Leon. - Nafin provided a 7-year loan to finance the
purchase by of a 352,150 ultrafiltration water
treatment system from A2 Water Process Solutions,
Inc. of Gregory, Texas. - Nafin provided the 7-year Peso loan term at a
very attractive rate of interest to support the
sale. - Under Ex-Im Banks Environmental Exports Program,
Nafin provided a second 7-year loan trance of
52,823 to finance the 15 local costs that
included software as well as installation of the
system.
14Case Study Facileasing, S.A.
- PNC Bank, Pittsburgh, PA arranged a 5-year loan
for Facileasing, S.A., Mexico City, to purchase
1 million in U.S.-made equipment. - The equipment includes a desalination plant,
solar panels, laundry equipment, and golf carts
which Facileasing, S.A will lease to the Hotel
Marival Cancun on 5-year lease payment terms. - Facileasing, S.A, based in Mexico City, offers
both finance and operating leases with payment
terms ranging from 12-60 months. - Facileasing, S.A.s customers include both
Mexican and U.S. and other multinational
companies, in the food, pharmaceutical, and
printing sectors. - Facileasing, S.A. retains title to the leased
assets for the entire term of the lease.
15Case Study Venezuela
- Ex-Im Banks Loan Guarantee Program has financed
over 300 million of an ongoing wastewater
treatment program for Venezuelas Ministry of
Environment and Renewable Natural Resources
(MARNAR). - MARNARs ongoing program focuses on providing
water and wastewater treatment services for
municipalities. - MARNR acts as the borrower with a loan repayment
guarantee provided by the Ministry of Finance. - MARNAR received a 10-year repayment term
beginning 6-months after project completion,
capitalized interest during construction, and 15
local cost support. - Harza Engineering, among others, have supplied
water treatment equipment and engineering
services.
16What Can Ex-Im do for Small Projects?
- Ex-Im Bank can make a credit decision about a
potential project in one of three ways - 1)Â Â Â Based strictly on the balance sheet of the
borrower or a guarantor - 2)Â Â Â As limited recourse project finance with a
special purpose company borrower and project cash
flows as the source of repayment - 3)Â Â Â Or, as a structured finance transaction
with the borrowers balance sheet enhanced by
special features. - Many projects are too large to be feasible
strictly on a balance sheet but too small to
merit the time and expense associated with
project finance transactions. - Structured finance may be an alternative.
17What Makes a Financing Structured?
- Structured finance involves elements of both
corporate and limited recourse project finance.
Like corporate finance, it involves full recourse
to the project sponsors balance sheet. - Like project finance, it involves special
features to enhance the credit of the borrower,
including (but not necessarily limited to) one or
more of the following - 1. Special purpose accounts, including
offshore payment accounts, escrow or reserve
accounts, or other accounts that would be subject
to Ex-Im Banks control - 2. Covenants and default provisions such as
financial ratios or debt service coverage
requirements that would, if violated, prevent
payment of dividends to the sponsors - 3. Insurance requirements that might be more
strict than those typically applicable under
corporate insurance policies - 4. Letters of credit or other sources of
funds that would be pledged by the sponsor to
Ex-Im Bank through a bank or other third party.
18Case Study Structured Finance
- 1. Northrop Grumman wins contract to supply
equipment/services to Sakaeronavigatsia (SAK) of
Georgia - Challenge Ex-Im Bank closed in Georgia at the
time - 2. SAK and Intl. Air Transport Assn. (IATA)
contract for billing and collection of overflight
revenueAirlines, both western and NIS, pay
over-flight fees into an escrow account in
Switzerland. - 4. Transaction creditworthy based on ability
of SAK to perform billing, ability of airlines to
pay over-flight into escrow account - 5. Bank of New York made the loan to SAK to
purchase the equip/services with Ex-Im Bank
Guarantee. - 6. Semi-annual PI payment made from escrow
account Excess funds, above reserve and debt
service, paid to SAK - Water, clean energy companies could use this
structure to sell clean water or energy to
creditworthy international customers.
19New Initiative Sub-sovereign Lending
- Recognizes emerging market for U.S. environmental
firms foreign cities, states, and other
sub-sovereign government entities. - Ex-Im Bank supports Loans/Guarantees to
sub-sovereign entities - Foreign currency debts are not in default
- Rated B/B2 or stronger by accepted global credit
rating agency. - The global credit rating agencies whose ratings
may be used - Standard Poors, Moodys, Duff Phelps,
Fitch/IBCA, and Japan Credit Rating. - New initiative immediately qualifies subsovereign
entities in - Argentina, Brazil, Bulgaria, China, Colombia,
Croatia, the Czech Republic, Estonia, Latvia,
Malaysia, Poland, Slovakia, and South Korea.
20Working Capital Guarantee
- Ex-Im Bank provides 90-100 repayment Guarantee
for working capital loans, revolving or
transaction based, made by commercial lenders to
small businesses to finance export sales. - The Working Capital Guarantee serves as the
collateral to the commercial lender by mitigating
the risk inherent when the source of repayment
for the loan is an overseas contract. - Enables exporters to finance materials, labor,
and overhead to produce goods/services for
export. - Enables exporters to cover standby letters of
credit for bid and performance bonds, or payment
guarantees. - Enables the exporters to finance foreign sales
receivables. - Most Working Capital Guarantees by Delegated
Authority Lenders (see www.exim.gov for a list)
without prior Ex-Im Bank approval.
21Case Study Anguil Environmental
- Ex-Im Banks WCGP made a number of working
capital loans to Anguil Environmental to support
its export sales. - Ex-Im Banks WCGP made possible a 1.25MM loan to
Anguil Environmental from Firststar Bank to
support a 2.9MM contract with Formosa Chemical
and Fibre Corp. - Formed in 1978 by Mr. Gene Anguil, the company
designs, builds, and installs custom-built
industrial pollution control systems. - Ex-Im Banks WCGP critical in this case given
that Anguil is a small business with limited
resources, and the source of repayment an
overseas contract.
22Conclusion
- Ex-Im Bank supports short, medium, and long-term
financing to creditworthy international
customers, and working capital guarantees to U.S.
exporters. - Ex-Im Bank enables U.S. exporters to arrange the
most attractive source of credit directly for
their customers. - Ex-Im Banks programs provide the most attractive
financing option for foreign small- and
medium-sized firms to purchase of U.S. goods and
services. - Ex-Im Bank is interested in any size project.
- http//www.exim.gov
- Craig.oconnor_at_exim.gov