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Exposure Fee Advice for Medium-Term Transactions

Since 1978, Ex-Im Bank has worked with the Organization for Economic Cooperation and Development (OECD) Arrangement to minimize official export credit subsidies to ensure that buying decisions are made on factors other than the financing provided by official export credit agencies (ECAs). There have been many achievements, including the elimination of trade-distorting tied aid from a variety of sectors and the establishment of market-related minimum interest rates. The establishment of minimum fees that ECAs must charge for risk is another step in our efforts to give U.S. exporters a level playing field and to minimize cost to taxpayers.

One of the last major uncovered aspects of official export finance support was the fees charged by ECAs for the risk that a transaction would not be repaid. In 1997, Ex-Im changed its exposure fee system in concert with all major ECAs to charge no less than the OECD minimum risk fees for sovereign transactions in all markets.

In February 2010, the Participants to the OECD Arrangement of Officially Supported Export Credits completed a round of negotiations which expanded the scope of the OECD premium rules to establish minimum premium rates (MPRs) for non-sovereign buyers, slightly reduce the MPRs for sovereign buyers, and institute a market-based pricing structure for transactions in Category 0 markets. Category 0 countries are defined as High Income OECD/Euro Countries.  They are: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom, United States. All of these changes to Ex-Im’s exposure fees went into effect on September 1, 2011.

"Permitted Exceptions" (i.e., conditions that insulate Ex-Im Bank from country risk) do permit lower than minimum OECD benchmark fees. Examples of situations that may qualify include off-shore escrow accounts and local currency guarantees.

1. How do our current products fit into the OECD fee system?
2. What risk elements are included?
3. How are non-sovereign rates determined for medium-term transactions?
4. How is country cover policy determined?
5. How Do I Get an Exposure Fee?

How do our current products fit into the OECD fee system?

• Short-Term Insurance
  These fees are not impacted as the OECD Arrangement applies only to transactions with repayment terms of at least two years.
  
  
• Medium-Term Products
  For medium-term insurance, we offer 100% coverage, standard quality, and the option to have fees financed or not; fees are paid up front or as disbursed. For direct loans, we offer 100% coverage, above standard quality, and the option to have fees financed or not; fees are paid as disbursed. We do offer an up-front payment option for fees. (Fees on canceled authorized amounts will be refunded.) For guarantees, we offer 100% coverage, above standard quality, and the option to have fees financed or not; fees are paid up front or as disbursed.
  
  
• Long-Term Products
  We offer the same on long-term loans and guarantees as we do on medium-term products.
  
  
• OECD Baseline
  The current OECD baseline product offers 95% coverage and standard quality; fees are not financed and are paid up-front.
  

What risk elements are included?

The basic sovereign risk exposure fee, i.e., the minimum fee for a country, is determined by five variables: exposure fee level of the country, percentage of cover, the "quality" of product provided, and the length of the drawdown and repayment periods.

• Ex-Im Bank Exposure Fee Level
  Exposure fee levels (0-7) have been established for all markets where it is possible for Ex-Im Bank to provide cover ( i.e., not in markets where Ex-Im Bank is prohibited by law from providing support). Since the minimum exposure fee for a country is determined by the OECD country classification, Ex-Im Bank exposure fee levels are consistent with OECD country classifications. For markets which have not been classified by the OECD process, Ex-Im Bank translates the U.S. Government's Interagency Country Risk Assessment System (ICRAS) classification (based on eleven categories) into a corresponding OECD exposure fee level.

• Percent of Cover, e.g., 90%, 95%, 100%
  The OECD norm for coverage is 95%. Ex-Im Bank's normal coverage is 100% for medium-term insurance, guarantees and loans. Ex-Im covers 100% for long-term loans and guarantees.  A premium is applied for the additional coverage.
  
  
• Products Offered (from least to most expensive)
  There are three quality levels of financing product:
  
  
  • Below Standard (conditional insurance product which does not cover post-default interest)
    Ex-Im Bank does not currently offer a "below standard" product.
  • Standard (conditional insurance product which covers post-default interest)
    Ex-Im Bank's existing insurance product quality is "standard."
  • Above Standard/Superior (unconditional coverage)
    Guarantees and direct loans are priced as "above standard." (The Arrangement would allow Ex-Im Bank to price the direct loan as a "standard" product, but Ex-Im Bank decided to price both equally in order to not introduce a bias in favor of direct loans over guarantees.)
  
  


• Length of the Drawdown Period
  Ex-Im Bank's exposure fees are sensitive to risk covered during the drawdown period, which is defined as the number of months from the first drawdown to the starting point of the credit under the approved transaction. (See www.exim.gov for Calculation of Drawdown Period.)
  


• Length of the Repayment Period
  Ex-Im Bank's exposure fees are sensitive to the length of the repayment period, expressed in half-year increments. The repayment period is defined as the time from the starting point of credit to the final repayment. (See Repayment Terms Fact Sheet.)
  

Ex-Im Bank's exposure fees are also dependent on two additional decision items: whether or not the exposure fee is to be financed and when the exposure fee is paid.

• Financing the Fee - Ex-Im Bank allows the exposure fee to be financed -- albeit at a higher rate than if not financed.

• Timing of Exposure Fee Payment
  Ex-Im Bank allows the choice of paying the entire exposure fee "up-front" at or before the time of first drawdown, or on a pro-rata basis as the loan is drawn down. The exposure fee will be higher if paid as disbursed to take account of the time value of money.

There are four options for paying the exposure fee:

• Fee Financed - either (1) paid as drawn down (typical for Ex-Im Bank; nominally highest fee option) or (2) paid up front (the fee is included in the promissory note with Ex-Im Bank's guarantee, but the lender pays the entire fee amount to Ex-Im Bank when it requests the first drawdown).

• Fee Not Financed - either (3) paid as drawn down (the fee is not included in the promissory note but paid, in parts, at each drawdown), or (4) paid up front (condition precedent; OECD "baseline fee," nominally lowest fee option).

Beginning September 1, 2011, the OECD fee arrangement stipulates minimum fees per country for both sovereign and non-sovereign risk, Ex-Im Bank has incorporated a series of credit classification or “CC” levels which are OECD compliant. 

If your transaction ’s financed/insured amount is $10 million or less (excluding the exposure fee) and credit ratings and/or market spreads for the transactions' borrower/guarantor are available, Ex-Im Bank will assign a CC score based largely on this information. Please contact the Trade Finance and Insurance Division at (202) 565-3400 for price approximation.

For the higher risk OECD Country Categories (5, 6 and 7) the number of non-sovereign buyer risk categories is reduced due to compression of private buyer risk in those markets (i.e. less credit worthy borrowers in those markets). Transactions in these country categories may require additional structuring.

For transactions in Category 0 markets, pricing will be determined using market benchmark indicators based on the credit risk of the buyer.  Please contact the Trade Finance and Insurance Division at (202) 565-3400 for price approximation or visit the Medium Term Exposure Fee Calculator to view the range of prices for given OECD Country Categories.

Please note that as of October 1, 2010, Ex-Im’s exposure fee advice tables are no longer used for medium-term transactions.

How is country cover policy determined?

Ex-Im Bank uses its Country Limitation Schedule (which remains based on ICRAS classifications) to determine country cover policy. Hence, the fact that the OECD agreement provides rates for countries where Ex-Im Bank is closed has no bearing on Ex-Im Bank's willingness to provide cover in a given market or for a particular transaction.

How Do I Get an Exposure Fee?

To obtain an exposure fee once you know all of the variables mentioned above please go to Medium-Term Exposure Fee Calculator.