Located near Tulsa, Oklahoma, Zeeco has been designing, engineering, and manufacturing combustion equipment and environmental systems for over 40 years. The types of equipment they manufacture are used by clients in every nation that has a petroleum industry. Zeeco’s transactions are large, ranging from $500,000 to tens of millions of dollars. Cycle times tend to be anywhere from six months to two years, depending on the project. The company has over 1,300 employees spanning across 20 global locations and 7 manufacturing facilities. Thus, exports are incredibly important to its business operations and profit.
Many of Zeeco’s foreign customers insist on a guarantee from suppliers to fulfill their contract commitments. Performance bonds give the foreign buyer the ability to guarantee contract fulfillment because if the U.S. business fails to perform as agreed, the buyer is compensated. Thus, many foreign buyers require performance and bid bonds as protection.
The challenge is insurance companies require these guarantees to be collateralized by the seller, often at 100 percent. This ties up precious working capital that could otherwise go toward creating value and fulfilling export orders. Additionally, exporters like Zeeco face special challenges, as lenders are often unable or unwilling to accept export-related assets (e.g., foreign receivables, export inventory) as collateral, given the difficulty of collection outside U.S. jurisdiction.
EXIM’s solution to Zeeco’s problem is the agency’s working capital loan guarantee. This is a way for U.S. companies to guarantee contract fulfillment to their customers with performance bonds by minimizing the adverse effect on their cash flow. The EXIM solution doesn’t replace the U.S. company’s lender; rather, EXIM works with lenders to provide a loan guarantee that backs the borrower’s debt in the event something goes awry. As an authorized EXIM lender, J.P. Morgan can underwrite and issue loans against export-related assets, backed by a 90 percent guarantee from EXIM. An EXIM guarantee is used to support the issuance of standby letters of credit serving as bid, performance and advance payment guarantees. Such guarantees need only be collateralized at 10 percent—a significant benefit to exporters seeking to maximize their liquidity.
The working capital loan guarantee from EXIM gave Zeeco the freedom necessary to expand more rapidly into international markets. EXIM worked with J.P. Morgan to equip Zeeco with the tools to meet buyers’ demands for protection and win projects that would have otherwise been out of reach due to more expensive bonds.
Since working with EXIM, Zeeco’s business has tripled in size and gained more competitive power and credibility that empowered them to drastically increase their international market share. “Without EXIM, our growth would be a fraction of what it is today,” said Zeeco CFO, John McDermott. “EXIM’s working capital loan guarantee enabled us to take our level of collateral and increase the facility available to us. Without EXIM, we would have to collateralize standby letters of credit dollar-for-dollar. With EXIM, it’s a fraction of that.”