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GLOBAL DEMAND FOR CREDIT and how to address it using EXPORT CREDIT INSURANCE Presented 12 November 2014 by Mabel Luen Meridian Finance Group Exporting in Economic Downturn Global financial crisis not affecting every sector of economy All countries linked but each region on its own path to recovery Worldwide demand continues to engender international trade U.S. is only 5% of world population and <25% of global GDP 20 free trade agreements with U.S. Majority of exports from the U.S. is done through small to medium businesses Export Payment Terms High Buyer Risk Cash in Advance Documentary Collection Letters of Credit Letters of Credit Documentary Collection Cash in Advance Open Account Low Seller Risk Open Account Global Demand for Credit High foreign interest rates and exchange controls Competitive tactic vs other suppliers Foreign buyers facing limited access to capital Customers refuse to pay cash in advance or open L/Cs To develop and support distribution and fill supply chains To keep doors open in strategic markets Exporters need to extend credit terms to expand international sales Problem: International Credit Risks But what happens if exporters don’t get paid? Foreign credit risks: Debtor bankruptcy, receivership, or insolvency Cash flow problems, balance sheet issues, financial fraud General economic conditions (there or in USA) Currency fluctuations, foreign exchange, transfer controls Expropriation, war, strikes, sanctions, and other political risks Plus exporters may face working capital issues: International sales require longer payment terms Lenders may exclude foreign A/R from collateral Solution: Export Credit Insurance Protect foreign receivables against virtually all default risks Extend competitive export payment terms with confidence Expand international sales and market share Export Credit Insurance Increase international profitability Enhance borrowing capacity by including their foreign A/R Credit Insurance: Financing Tool Export credit insurance enables lenders to: Include foreign receivables in an exporter’s borrowing base Offer more favorable financing terms to exporters Take assignment of insurance proceeds as policy’s loss payee Protect against borrower non-performance Export credit insurance enables exporters to: Strengthen their balance sheets Reduce their bad debt reserves Facilitate securitization of foreign A/R Export Credit Insurance Underwriters Federal Program: Ex-Im Bank • Unique small-business policies • 95% coverage • Open in highest-risk markets • Only available for products manufactured in USA Private Sector: Insurance Companies • No content restrictions • Minimum annual premiums • 90% coverage • Less algorithmic, more flexible underwriting Meridian Finance Group • Specialized broker with 20 years of experience • Most active Ex-Im Bank broker in the country • Access to every insurance company in the market Export Credit Insurance Policies Types of Policies Whole turnover, top buyers, reasonable spread of risk Single buyer, adverse selection (cherry-picking) Premium Premium rates are a fraction of 1% of exporter’s invoice amounts Pay-as-you-go with monthly reporting or paid annually in advance Claim Filing Immediately for some bankruptcy/insolvency or political risks Flexible window of time for protracted defaults Buyer Approvals Named buyer credit limits from underwriter database Decisions based on exporter, experience, transactions Meridian Finance Group Insurance Export credit insurance Political risk insurance Domestic Receivables Insurance Policies for financial institutions Trade Finance Cross-border equipment financing Revolving buyer credit facilities Note purchase agreements Custom financing structures For More Inforamtion Meridian Finance Group Mabel Luen Regional Manager [email protected] 1247 7th Street, Suite 200 Santa Monica, CA 90401 Tel: 310 260 2130 Fax: 310 260 2140 www.meridianfinance.com San Francisco, Seattle, Phoenix, Raleigh, Miami, New York
