Since 1978, EXIM Bank has worked with the Organizationfor 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, EXIM 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 EXIM's exposure fees went into effect on September 1, 2011.
"Permitted Exceptions" (i.e., conditions that insulate EXIM 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.
- How do our current products fit into the OECD fee system?
- What risk elements are included?
- How are non-sovereign rates determined for long-term transactions?
- How is country cover policy determined?
- 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
(EXIM Exposure Fee Advice Tables for Short Term Insurance)
- 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 coverage on long-term loans and guarantees as we do on medium-term loans and guarantees.
- 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.
- EXIM Bank Exposure Fee Level
Exposure fee levels (0-7) have been established for all markets where it is possible for EXIM Bank to provide cover ( i.e., not in markets where EXIM Bank is prohibited by law from providing support). Since the minimum exposure fee for a country is determined by the OECD country classification, EXIM Bank exposure fee levels are consistent with OECD country classifications. For markets which have not been classified by the OECD process, EXIM 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%. EXIM Bank's normal coverage is 100% for medium-term insurance, guarantees and loans. EXIM 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) EXIM Bank does not currently offer a "below standard" product.
- Standard (conditional insurance product which covers post-default interest) EXIM 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 EXIM Bank to price the direct loan as a "standard" product, but EXIM 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
EXIM 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.
- Length of the Repayment Period
EXIM 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.)
EXIM Bank's exposure fees are also sensitive to two additional decision items, whether or not the exposure fee is to be financed and when the exposure fee is paid.
- Financing the Fee
EXIM Bank allows the exposure fee to be financed -- albeit at a higher rate than if not financed.
- Timing of Exposure Fee Payment
EXIM 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 EXIM Bank; nominally highest fee option) or (2) paid up front (the fee is included in the promissory note with EXIM Bank's guarantee, but the lender pays the entire fee amount to EXIM 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).
How are non-sovereign rates determined for long-term transactions?
Beginning September 1, 2011, the OECD fee arrangement stipulates minimum fees per country for both sovereign and non-sovereign risk, EXIM Bank has incorporated a series of credit classification or "CC" levels which are OECD compliant.
Fees for non-sovereign transactions cannot be less than the sovereign fee, except for permitted exceptions, and when "political risk only" cover is provided (these cases are priced at the level of Better than Sovereign or "BTS" level, which is 10% lower than the sovereign rate).
The CC-score for long-term transactions are determined through EXIM's credit risk analysis.
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 Structured Finance Division at (202) 565-3690 for price approximation.
How is country cover policy determined?
EXIM Bank uses its Country Limitation Schedule (which remains based on US Government Interagency Country Risk Assessment System (ICRAS) classifications) to determine country cover policy. Hence, the fact that the OECD agreement provides rates for countries where EXIM Bank is closed has no bearing on EXIM 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 the Long-Term Exposure Fee Calculator.