# Presentation: 526212

## “Financing Water and Wastewater Treatment Projects” 

**Craig O’Connor**
**Environmental Liaison Officer**

## U.S. Ex-Im Bank

**Independent agency of the U.S. government. **
**Established in 1934 to finance the export sales of goods and services produced in the U.S...Since 1934, has supported over $400 billion in exports. **
**Supports short, medium, and long-term financing to **_**creditworthy**_** international customers both public- and private-sector; working capital guarantees to U.S. exporters.**
**Products include Direct Loans, Guarantees, Export Credit Insurance, Working capital Guarantees, Tied Aid Fund.**
***No minimum nor maximum project size.***
**Special initiatives for environmental exports, small business, and lending *****directly *****to municipalities*****.***

## Ex-Im Bank Value Proposition

_**What does Ex-Im Bank bring to the table?**_
**Ability to directly extend credits to private- and public-sector buyers, in-country utilities, equipment dealers, or government agencies**
**Ability to support small projects: No minimum project size helps smaller in-country deals...**
***Environmental Dynamics *****has***** *****used Ex-Im Bank to extend a $2,000 credit line to an overseas customer**
**Ability to support loan repayment terms of 10 years **
**Ability to support interest rates based on small spread over commercial banks cost of funds (U.S. $ LIBOR)**
**Ability to help leverage USAID, GEF and other donor funds**

## Environmental Exports Program

**Support for environmentally-beneficial exports, *****including wastewater treatment plants,***** mandated in Ex-Im Bank’s Charter. **
**Ex-Im Bank has Environmental Standards and Guidelines applied to each project considered under its Loan and Guarantee Programs.**
**Environmental Exports Program Consists of **_**pro-active**_** business development and enhancements to existing Ex-Im Bank programs.**
**Environmental projects are offered enhancements:**
**Maximum OECD repayment term  for Long-Term Loans and Guarantees of 10-15 years after project completion.**
**Capitalization of interest during construction.**
**Up to 15% local cost support within the U.S. scope of supply. **
_**RESULTS: **_**Transactions approved under the Program grew from **
**     ****13 in FY 1994, to 71 in FY2004, totaling over $1.5 billion.**

## Export Credit Insurance

**Enables U.S. exporters to offer short- and medium-term *****credit directly to their customers. ***
**Export credit is an attractive substitute to cash-in-advance, letters of credit and costly local bank financing.**
**Using Ex-Im Bank to *****insure a letter of credit instead of paying bank confirmation charges *****is usually more cost effective.**
***Example: Insurance costs 0.11% or $110 for a $100,000 sight letter of credit vs. $2,500 minimum bank confirmation charge.***
** **
**Supports repayment terms up to 180 days beginning from date of importation of the goods; capital goods terms of 360 days-7 years. **
**Only an invoice of the sale needed for short-term credit; Ex-Im Bank provides a promissory note to document medium-term credits. **
***Insurance lowers reserve requirements for commercial banks.***

## Case Study: Aquamatch, Inc.

***Aquamatch, Inc.***** of Laguna Hills, CA is using Ex-Im Bank’s Short-Term Multi-buyer Insurance to offer open account credit terms to buyers in Mexico, Saudi Arabia, Turkey, Italy, and the Philippines, among others. **
***Aquamatch, Inc. *****is a small business manufacturer of water purification products that also provides services for the design and installation wastewater treatment plants. **
***Aquamatch, Inc. *****sought Ex-Im Bank’s Insurance to be more competitive in granting open account credit – terms which are routinely offered by their European competitors. **
**With Ex-Im Bank’s  Insurance, *****Aquamatch, Inc. *****is able to “assign” its insured receivables as collateral for an SBA loan to further grow its business.**

## Case Study: Monarch Separators

***Monarch Separators Inc*****., a Houston, TX, a small business with 10 employees is using Ex-Im Bank’s Short-Term Insurance to expand their export sales.**
** *****Monarch Separators Inc*****., manufactures oil-water separation equipment as well as other pollution control equipment.**
**Using Ex-Im Bank’s Insurance, *****Monarch *****is able to offer **_***“open account”***_** credit terms of up to 180 days to customers such as *****Pemex*****, *****PDVSA, *****and *****China Petroleum Company.***
***Monarch’s ***_***“open account”***_** terms replace costly local bank financing and payment by local bank letters of credit.**
***Monarch’s *****sales are expected to **_**INCREASE by $1 MILLION**_** next year by using more aggressive credit terms.**

## Case Study: US Filter in China

***U.S. Filter***** required a confirmed L/C to support their sale of $520,000 in water treatment equipment to a buyer in China**
**Chinese banks do NOT allow their L/Cs to be confirmed**
**In order for a U.S. bank to confirm an L/C, *****the issuing bank must request confirmation***** in the original L/C**
***U.S. Filter’s***** bank was unwilling to provide a *****silent confirmation***** – a commitment to pay the exporter under the L/C without actual confirmation – because it would payment risk of the issuing bank.**
**The Short-Term Single Buyer Policy provided 95% commercial coverage, 100% political coverage to U.S. Filter against the risk of default of the L/C issued by China Construction Bank.**
***Insurance costs 0.08% or $80 for a $100,000 letter of credit***
**With the Insurance in place *****U.S. Filter***** now in a position to *****“assign” *****the L/C to its bank for immediate funding.**

## Short-Term Credit Process

**1. The U.S. supplier submits the application along with the required information to establish a credit limit for the foreign customer to Ex-Im Bank.**
**2. The information requirements from the foreign company for credit limits are as follows: **
**$10,000 credit a favorable trade or bank reference.**
**$10,000-$50,000 credit a current credit report.**
**$50,000-$100,000 credit a current credit report plus a favorable bank or trade reference.**
**Over $100,000 credit a current credit report, latest 3 years financial statements, and references.   **
**3. Ex-Im Bank’s Loan Officer analyzes the application and makes a decision on the amount of credit to be supported.**

## Medium-Term Guarantee Process

**1. The Guaranteed Lender bank submits the application for *****Final Commitment***** under its *****Master Guarantee Agreement *****along with the required information to establish the credit limit for the foreign customer.**
**2. The information requirements from the foreign company for Medium-Term credit limits are as follows: **
**A current credit report.**
**A current commercial bank reference.**
**Latest 3 years financial statements; interim statements if the latest year’s financial statement is older than 1 year.**
**Note: audited statements required for credits over $1MM**
**Copy of the export contract.    **
**3. Ex-Im Bank’s Loan Officer analyzes the application and makes a decision on the amount of credit to be supported.**

## Medium-Term Credit Standards

**Positive Operating Profit over last 2 years**
**Positive Net Income over last 2 years**
**Positive Cash-Flow-From-Operations (latest year)**
**EBITDA/Debt Service greater than 150%**
**Total Liabilities/Total Net Worth less than 175%**
**Ex-Im Bank Exposure/Total Net Worth less than 40%**
**Borrowers that meet these standards very likely to be approved. If the borrowers misses one or more of the standards, Ex-Im Bank will conduct further analysis of the borrowers’ business to determine whether to grant approval.**

## Loan Guarantee Program

_***Guaranteed Loans***_** made by commercial banks (U.S. or foreign) to a foreign buyer with a 100% *****unconditional *****repayment guarantee from Ex-Im Bank **
**Guarantee covers 85% of the U.S. content of the transaction.**
***Negotiated***** interest rates, usually a floating rate based on spread over 6-month U.S. dollar LIBOR rate**
**Loan fully transferable, can be securitized**
**Banks often finance the 15% required cash payment**
**Guarantee available in major foreign currencies**

## Case Study: Nafin

**Nafin - a Mexican Government development bank that is also a partner bank with Ex-Im Bank under the Master Guarantee Program – used Ex-Im Bank’s Loan Guarantee Program to provide a **_**PESO loan**_** to Industrias Islas S.A. of Nuevo Leon.**
**Nafin provided a 7-year loan to finance the purchase by of a $352,150 ultrafiltration water treatment system from A2 Water Process Solutions, Inc. of Gregory, Texas.**
**Nafin provided the 7-year Peso loan term at a very attractive rate of interest to support the sale.**
**Under Ex-Im Bank’s Environmental Exports Program, Nafin provided a second 7-year loan trance of $52,823 to finance the 15% local costs that included software as well as installation of the system.**

## Case Study: Facileasing, S.A.

**PNC Bank, Pittsburgh, PA arranged a 5-year loan for *****Facileasing, S.A., *****Mexico City, to purchase $1 million in U.S.-made equipment.***** ***
**The equipment includes a desalination plant, **_***solar panels***_**, laundry equipment, and golf carts which *****Facileasing, S.A *****will lease to the  Hotel Marival – Cancun on 5-year lease payment terms.**
***Facileasing, S.A, *****based in Mexico City, ***** *****offers both finance and operating leases with payment terms ranging from 12-60 months.**
***Facileasing, S.A.’s *****customers include both Mexican and U.S. and other multinational companies, in the food, pharmaceutical, and printing sectors.**
***Facileasing, S.A. *****retains title to the leased assets for the entire term of the lease.**

## Case Study: Venezuela

**Ex-Im Bank’s Loan Guarantee Program has financed over $300 million of an ongoing wastewater treatment program for Venezuela’s Ministry of Environment and Renewable Natural Resources (“MARNAR”). **
**MARNAR’s ongoing program focuses on providing water and wastewater treatment services for municipalities.**
**MARNR acts as the borrower with a loan repayment guarantee provided by the Ministry of Finance.**
**MARNAR received a 10-year repayment term beginning 6-months **_**after**_** project completion, capitalized interest during construction, and 15% local cost support.**
**Harza Engineering, among others, have supplied water treatment equipment and engineering services.**

## What Can Ex-Im do for “Small” Projects?

**Ex-Im Bank can make a credit decision about a potential project in one of three ways:**
**1)****    ****Based strictly on the balance sheet of the borrower or a guarantor;**
**2)****    ****As limited recourse project finance with a special purpose company borrower and project cash flows as the source of repayment;**
**3)****    ****Or, as a structured finance transaction with the borrower’s balance sheet enhanced by special features.**
**Many projects are too large to be feasible strictly on a balance sheet... but too small to merit the time and expense associated with project finance transactions. **
**“****Structured” finance may be an alternative.  **

## What Makes a Financing “Structured”?

**Structured finance involves elements of both corporate and limited recourse project finance.  Like corporate finance, it involves full recourse to the project sponsor’s balance sheet. **
**Like project finance, it involves special features to enhance the credit of the borrower, including (but not necessarily limited to) one or more of the following: **
******     ****Special purpose accounts, including offshore payment accounts, escrow or reserve accounts, or other accounts that would be subject to Ex-Im Bank’s control;**
**2.****     ****Covenants and default provisions such as financial ratios or debt service coverage requirements that would, if violated, prevent payment of dividends to the sponsors;**
**3.    Insurance requirements that might be more strict than those typically applicable under corporate insurance policies; **
**4. ****    ****Letters of credit or other sources of funds that would be pledged by the sponsor to Ex-Im Bank through a bank or other third party.**

## Case Study: Structured Finance

**1.    Northrop Grumman wins contract to supply equipment/services to Sakaeronavigatsia (SAK) of Georgia**
**	**_**Challenge:**_** Ex-Im Bank closed in Georgia at the time**
**2.     SAK and Intl. Air Transport Assn. (IATA) contract for billing and collection of overflight revenue...Airlines, both western and NIS, pay over-flight fees into an escrow account in Switzerland.**
**4.    Transaction creditworthy based on ability of SAK to perform billing, ability of airlines to pay over-flight into escrow account **
**5.    Bank of New York made the loan to SAK to purchase the equip/services with **_***Ex-Im Bank Guarantee.***_
**6.     Semi-annual P&I payment made from escrow account; ****	****Excess funds, above reserve and debt service, paid to SAK**
**	*****Water, clean***** *****energy companies could use this structure to sell “clean water or energy” to creditworthy international customers.***

## New Initiative: Sub-sovereign Lending

**Recognizes emerging market for U.S. environmental firms: foreign cities, states, and other sub-sovereign government entities.**
**Ex-Im Bank supports Loans/Guarantees to sub-sovereign entities:**
**Foreign currency debts are not in default **
**Rated B/B2 or stronger by accepted global credit rating agency.**
**The global credit rating agencies whose ratings may be used:**
**Standard & Poor’s, Moody’s, Duff & Phelps, Fitch/IBCA, and Japan Credit Rating. **
**New initiative immediately qualifies subsovereign entities in: **
**Argentina, Brazil, Bulgaria, China, Colombia, Croatia, the Czech Republic, Estonia, Latvia, Malaysia, Poland, Slovakia, and South Korea. **

## Working Capital Guarantee

**Ex-Im Bank provides 90-100% repayment Guarantee for working capital loans, revolving or transaction based, made by commercial lenders to small businesses to finance export sales.**
**The Working Capital Guarantee serves as the collateral to the commercial lender by mitigating the risk inherent when the source of repayment for the loan is an overseas contract.**
**Enables exporters to finance materials, labor, and overhead to produce goods/services for export.**
**Enables exporters to cover standby letters of credit for bid and performance bonds, or payment guarantees.**
**Enables the exporters to finance foreign sales receivables.**
**Most Working Capital Guarantees  by Delegated Authority Lenders (see **_[www.](http://www.exim.gov/)__[exim](http://www.exim.gov/)__[.](http://www.exim.gov/)__[gov](http://www.exim.gov/)_** for a list) without prior Ex-Im Bank approval.**

## Case Study: Anguil Environmental

**Ex-Im Bank’s WCGP made a number of working capital loans to Anguil Environmental to support its export sales. **
**Ex-Im Bank’s WCGP made possible a $1.25MM loan to Anguil Environmental from Firststar Bank to support a $2.9MM contract with Formosa Chemical and Fibre Corp.**
**Formed in 1978 by Mr. Gene Anguil, the company designs, builds, and installs custom-built industrial pollution control systems.**
**Ex-Im Bank’s WCGP critical in this case given that Anguil is a small business with limited resources, and the source of repayment an overseas contract.**

## Conclusion

**Ex-Im Bank supports short, medium, and long-term financing to **_**creditworthy**_** international customers, and working capital guarantees to U.S. exporters.**
**Ex-Im Bank enables U.S. exporters to arrange the *****most attractive source of credit directly for their customers.***
**Ex-Im Bank’s programs provide the most attractive financing option for foreign small- and medium-sized firms to purchase of U.S. goods and services. **
**Ex-Im Bank is interested in any size project. **
- _[http://www.exim.](http://www.exim.gov/)__[gov](http://www.exim.gov/)_
***Craig.oconnor@exim.gov***