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. We changed our
exposure fee system in concert with all major ECAs to
charge no less than the OECD minimum risk fees for every
market. Ex-Im Bank set its exposure fees at the lowest
levels allowed for sovereign transactions. This means
that for sovereign risk transactions, no other ECA will
be able to provide support at a more advantageous rate
than Ex-Im Bank. Like every asp ect of the Arrangement,
the system only affects transactions with at least a two-year
"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
acceptable third country guarantors.
How do our current products fit into
the OECD fee system?
What risk elements are included?
How are non-sovereign rates determined
for medium-term transactions?
How is country cover policy determined?
How Do I Get an Exposure Fee?
How do our current products fit into the OECD
These fees are not impacted as the OECD Arrangement
applies only to transactions with repayment terms of
at least two years.
For medium-term insurance, we offer 100% coverage, standard
quality, and the option to have fees financed or not;
fees are paid up front. 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 will 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 as disbursed. We offer an up-front option.
We offer the same on long-term loans and guarantees
as we do on medium-term products.
The current OECD baseline product offers 95% coverage
and standard quality; fees are not financed and are
risk elements are included?
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
Bank Exposure Fee Level
Exposure fee levels (1-7) have been established for all
markets where it is possible for Ex-Im Bank to provide cover
( i.e., not for 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
an exposure fee level.
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.
A premium is applied for the additional coverage.
Offered (from least to most expensive)
There are three quality levels of financing product:
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
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
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.)
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
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.
Ex-Im Bank allows the exposure fee to be financed -- albeit
at a higher rate than if not financed. Also, it remains
possible to finance 85% of the exposure fee at the lower
rate, i.e., if the exposure fee has been subsumed in the
contract value of the exports being covered.
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:
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).
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).
are non-sovereign rates determined for medium-term transactions?
Since the OECD fee arrangement stipulates minimum fees per
country, i.e., sovereign risk fees, Ex-Im Bank has established
a series of credit classification or “CC” levels
which determine the exposure fees for non-sovereign medium-term
transactions effective October 1, 2010.
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).
your transaction's financed/insured amount is $10 million
or less (excluding the exposure fee) and the borrower/guarantor
is unrated, the transaction will be rated using Ex-Im Bank's
new CC-based pricing system. CC levels are determined based
on the credit risk of the buyer. For the descriptions of
the 5 levels of private buyer risk – for both corporate
and financial institution risk – please see Definitions
for Corporate Risk and Definitions for Financial Institution
Risk. These credit factors constitute the range of CC scores.
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.
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.
note that as of October 1, 2010, the exposure fee advice
tables are no longer used for medium-term transactions.
is country cover policy determined?
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.
Do I Get an Exposure Fee?
obtain an exposure fee once you know all of the variables
mentioned above please go to Medium-Term Exposure Fee Calculator.