Export Financing: Export-Import Bank of the United States March , 2011

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© 2010 J.P.Morgan Chase and Co. All rights reserved.

Export Financing:Export Financing:

Export-Import Bank of the United StatesExport-Import Bank of the United States

March, 2011March, 2011

JPMorgan Chase Bank, N.A. Member FDIC

© 2010 J.P.Morgan Chase and Co. All rights reserved. 2

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Access to Solutions – What is “Bankable”?

■ In a recent export finance seminar, Mike Howard, Regional Director of the Ex-Im Bank, made the very important statement: Ex-Im’s programs are not designed to make bad deals look good.

■ During this most recent financial recession, there has been much attention paid to credit quality as well as compliance (OFAC, Patriot Act and Know Your Customer, for example).

■ When you’re seeking to talk with a commercial bank regarding financing to support your global trade activity, you’ll need to present a solid case.

■ A business plan and 2 to 3 years of financial statements are a start.

■ Arrange a meeting with a commercial banker at your financial institution and explain your complete scenario – not just the single transaction, but how that transaction fits into your company’s overall business and business plan.

■ Be prepared to tell your story a couple of times, because export finance will almost always involve not only your domestic banker but also the international specialist(s) at that bank who will work with the banker.


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Structured Trade Solution - Export-Import Bank

The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States. Ex-Im Bank's mission is to assist in financing the export of U.S. goods and services to international markets.

The agency assists exporters by guaranteeing term financing to creditworthy international buyers, both private and public sector, for purchases of U.S. goods and services.

Ex-Im Bank enables U.S. companies — large and small — to turn export opportunities into real sales that help to maintain and create U.S. jobs and contribute to a stronger national economy.

Ex-Im Bank does not compete with private sector lenders but provides export financing products that fill gaps in trade financing. They assume credit and country risks that the private sector is unable or unwilling to accept. They also help to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.

Product suite includes working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing). No transaction is too large or too small. On average, 85% of transactions directly benefit U.S. small businesses.

With more than 70 years of experience, Ex-Im Bank has supported more than $400 billion of U.S. exports, primarily to developing markets worldwide.


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Structured Trade Solution – Export-Import BankExport Working Capital Loan Guaranty Program

In 1982, developed the industry’s first loan guaranty program for short-term Export Working Capital Finance

Provides a 90% guaranty to commercial banks who provide lines of credit secured by pre-export inventory and post-export accounts receivable

Key Program known as the EXPORT WORKING CAPITAL LOAN GUARANTY

PROGRAM

MAIN FEATURE: Allows Export A/R into a Borrowing Base Excellent Feature: 10-25% offset to Borrowing Base for Standby LC’s issued Market advance rates on collateral = More Liquidity for the Exporter

(Upwards of 65% on Inventory and 90% on export Accounts Receivable)

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Ex-Im Bank Success Story -Export Working Capital Loan Guaranty Program

Exporter: The Robbins Company - Solon, OH (as reported on the Ex-Im website)Destination: Mexico City and IndiaTransaction: Working Capital Guaranteed LoansExport Sales: $72 millionJobs Supported: 100 per project

The Robbins Company of Solon, Ohio, which designs and services tunnel boring, hydroelectric, sewer rehabilitation and irrigation machinery. In 2009, Ex-Im Bank guaranteed a $47 million working capital facility to support Robbins equipment exports for the drilling of 39 miles of sewer tunnels in Mexico City.

“Ex-Im Bank’s working capital guarantees enabled us obtain large loans in minimal time to meet major contracts in India and Mexico,” said James Virost, Robbins CFO.

What are the costs that one can anticipate, as part of Ex-Im’s EWCG Program?

Ex-Im application fee: $100

Ex-Im guarantee fee: 1.5%

Lender interest rate, Field audit fees, Legal fees if applicable, Letter of Credit fees if applicable


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Ex-Im Bank EWCG Program Benefits –Expansion Of Borrowing Base

Asset Based Facility WCGP

Collateral Amount Advance Collateral Advance Collateral

Exportable Inventory

Raw Materials $ 200,000 20% $ 40,000 75% $ 150,000

WIP $ 200,000 0% $ 0.00 75% $ 150,000

Finished Goods $ 600,000 50% $300,000 75% $ 450,000

Subtotal $1,000,000 $340,000 $ 750,000

Foreign Accounts Receivable (A/R)

Open Account $ 400,000 0% $ 0.00 90% $ 360,000

L/C Backed A/R $ 600,000 75% $420,000 90% $ 540,000

Subtotal $1,000,000 $420,000 $ 900,000

Total Borrowing Base$760,000 $1,650,000


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Structured Trade Finance –Protecting Your Accounts Receivable

THE ONLY UNINSURED ASSET

One of the most vulnerable to a loss

More likely to be affected by business cycles

Provides the cash flow (lifeblood) of a business

Represents permanent investment

High cost to maintain (funded through bank borrowings and cost of delinquencies)

SeniorSenior

ExecutivesExecutivesCashCash

Land &Land &

BuildingsBuildings

MachMach&&

EquipEquip InventoriesInventories

AccountsAccounts

ReceivableReceivable


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NEW SALES NECESSARY TO REPLACE A CREDIT LOSS

$1,000$1,000

$2,000$2,000

$3,000$3,000

$4,000$4,000

$5,000$5,000

$6,000$6,000

$7,000$7,000

$8,000$8,000

$9,000$9,000

$10,000$10,000

$11,000$11,000

$12,000$12,000

$13,000$13,000

$100$100 $200$200 $300$300 $400$400 $500$500 $600$600 $700$700 $800$800 $900$900 $1,000$1,000

The lower the Gross The lower the Gross Margin %, the more Margin %, the more

new sales new sales required to to recoup a credit loss.recoup a credit loss.

SA

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(‘0

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CREDIT LOSS (‘000)CREDIT LOSS (‘000)

5% Gross Margin

10% Gross Margin

20% Gross Margin

30% Gross Margin


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Short-Term Export Credit Insurance

WHAT:

Commercial Risk of Default: Insolvency and Protracted Default

Country/Political Risk: CEN, Debt Moratorium, Trade Embargo, License Cancellations etc.

WHY:

Provides coverage against the unforeseen and unexpected just like other insurances

Export receivables are usually the riskiest portion of the current asset portfolio yet it is the only one that is unprotected

WHERE:

The US Government’s Official Export Credit Agency: Ex-Im Bank (Full Faith&Credit, Largest source of U/W capacity, Not subject to re-insurance, Subject to underwriting restrictions based on budgetary, political or bilateral considerations)

The Private Sector: Filling the “niches” and shortfalls in the programs of the ECA’s. Offering additional capacity and more flexible, responsive and commercially oriented insurance programs

WHEN:

When you want to mitigate the risk of loss and/or cap it

When you want to meet or beat the competition

When you want to tap new sources of financing for your company and your buyers


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Ex-Im Bank Success Story – Using A/R Insurance

Guntert & Zimmerman Const. Div., Inc. (as reported on the Ex-Im website, Nov 8, 2010)

Backed by an insurance policy from the Ex-Im Bank, small business Guntert & Zimmerman Construction Inc. (G&Z) recently exported $1.58 million in concrete paving equipment to a Czech Republic company that will use the equipment to expand its fleet of road construction machinery. G&Z was initially started in 1942 by current President & CEO’s Ronald Guntert Jr.’s father as an engineering and construction company to fulfill World War II contracts. Today the company has 150 employees and exports to a wide range of global markets including the Netherlands, Indonesia, India, the Czech Republic and Canada.

Mr. Guntert remarked “Ex-Im’s support were instrumental in our being able to secure this deal… This Ex-Im Bank backed credit facility helped push the purchase in our favor." Mr. Guntert says the transaction "will be a big contribution to total revenues for the year. It will help keep our people busy. Right now our backlog is exports. If the backlog continues to grow, we will bring on more people. Currently we're looking for another engineer and some machinists."

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© 2010 J.P.Morgan Chase and Co. All rights reserved.

Getting Paid – Managing Counterparty RiskGetting Paid – Managing Counterparty Risk

March, 2011March, 2011

JPMorgan Chase Bank, N.A. Member FDIC


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This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan.

The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.

Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan.

J.P. Morgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.

IRS Circular 230 Disclosure: J.P. Morgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with J.P. Morgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

J.P. Morgan is a marketing name for investment banking businesses of J.P. Morgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of J.P. Morgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by J.P. Morgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities.

This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.


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Setting the Stage

Department of Commerce: January 2011 exports of $167.7 billion are up, compared to December 2010 exports of $163.3 billion. January 2011 imports of $214.1 billion are also up, compared to December 2010 imports of $203.6 billion

“To help exports grow even faster, this administration through the President’s National Export Initiative is committed to assisting small- and medium-sized businesses export more of their goods and services.” Gary Locke – U.S. Commerce Secretary

Five most active markets for US trade: China, Canada, Mexico, Japan, Germany

Top categories for US global trade: Computer and Electronic Products, Transportation Equipment, Chemicals, Machinery, Oil & Gas

Global trade has changed. The risks are larger. The rules more complex.

And the rewards are greater. Keeping abreast of changing needs and

demands of compliant and efficient global trade continues to be top of mind

for U.S. businesses and their service providers.


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Global Trade Finance Solutions Should:

Integrate seamlessly with cash and liquidity processes to increase the efficiency of treasury operations

Employ a broad range of settlement, risk mitigation and financing tools and solutions related to the commercial transaction and flow of goods

Recognize that individual requirements differ. Therefore in order to select the right mix of tools and solutions, demand a consultative approach from your provider(s)


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Global Trade: Identifying the risks

Political—unexpected changes (country or regional—i.e. war)

Economic—economic change in specific countries, regions, or inter-regional

Commercial Buyer credit acceptability Information difficult to obtain Different financial standards Cultural/Business Standard Differences

Language (Negotiation/Interpretation)

Foreign Exchange—currency rate fluctuations

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Global Trade: Identifying the risks

Compliance – government regulations Special Import or Export licenses Office of Foreign Asset Control (OFAC)

www.treas.gov/offices/enforcement/ofac Bureau of Industry & Security (BIS)

www.bis.doc.gov Office of Antiboycott Compliance

www.bis.gov/AntiboycottCompliance/Default.htm Anti-Money Laundering

Money Transfer Risk Availability of US Dollars Currency Restrictions/Licenses

Time and Distance Shipping Hazards (insurance coverage) Freight Costs Customs (quotas, customs delays)

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Global Trade: Facing the risks of getting paid

What’s Right For You

How much risk is your company willing to take?

How well do you know your customer?

What payment terms are typical for your industry?

What is your competition offering?

What is the nature of the order?

What is the political and economic situation in the Buyer’s country?

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International Payment Methods

Most Protection

Least Protection

CASH IN ADVANCE

LETTER OF CREDIT

DOCUMENTARY COLLECTION

OPEN ACCOUNT

Most Commonly Used MethodsMost Commonly Used Methods

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International Payment Methods: Cash in advance

BUYER orders and pays for goods before shipment is made

SELLER begins to manufacture or ships goods upon receipt of funds

BUYER

Pays

SELLER

Goods

Documents

Goods

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International Payment Methods: Cash in advance

Cash in Advance Characteristics

BUYER and SELLER typically know each other very well, and/or shipment and the cost of goods is small

BUYER is not protected and may not be willing to pay up front

A SELLER’s preference

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International Payment Methods: Open account

SELLER ships goods and sends documents (Invoice and Bill of Lading) to BUYER

BUYER pays for goods upon their receipt

SELLER

Documents

BUYER

Goods

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International Payment Methods: Open account

Open Account Characteristics

SELLER knows BUYER well and has little concern about BUYER’s ability to pay

Typically, these are periodic shipments of the same goods and often the same quantity

Least secure method for SELLER

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Goods

International Payment Methods: Documentary collections with payment at sight (goods delivered against payment)

SELLER makes shipment (1) and sends shipping documents to its Bank (2), who sends them on to BUYER’s Bank (3)

BUYER’s Bank advises BUYER that documents have arrived (4) and will be released against whatever payment terms are in the Collection Letter (5)

BUYER BUYER’sBank

SELLER’sBank

SELLER

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Documents Documents Documents

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International Payment Methods: Documentary collections with payment over time (goods delivered against acceptance)

BUYER

SELLER

Documents

Goods Port

BUYER makes payment or accepts draft and BUYER’s Bank releases the documents to BUYER

BUYER takes documents to port/airport and picks up goods

BUYER’s Bank pays SELLER’s Bank or advises of acceptance. SELLER’s Bank pays SELLER or advises of acceptance

BUYER’sBank

SELLER’sBank

Documents

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International Payment Methods: Letters of credit

A Letter of Credit replaces risk of BUYER with risk of Issuing Bank

It assures the SELLER that he will be paid provided that documents presented comply with its terms and conditions

A Confirmed Letter of Credit is the undertaking of two Banks; the Issuing Bank and the Confirming Bank. Both are equally liable to pay the beneficiary

BUYER

Application

Letter of CreditAdvice Letter

Letter of Credit

SELLER

Advising Bank

BUYER’s Bank

Goods

Documents

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Letter of Credit (LC) Characteristics

Offers the most protection to the SELLER

Three independent “agreements” underline letters of credit between BUYER and SELLER (their contract) between Applicant and Issuing Bank (application and

reimbursement agreement) between Issuing Bank and Beneficiary (the LC)

Banks deal in documents only. BUYER’s recourse for problems with goods is to the contract with the SELLER. Commercial dispute

Documents presented under an LC must comply with its terms and conditions, otherwise there is no obligation to honor

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Sight

Payment effected when documents are presented which are in compliance with the terms and conditions of the credit

Payment may or may not occur immediately if payable in the US if payable in a foreign country LC terms may contain special provisions about timing

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Timeline for sight letter of credit

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Documentary Letter of Credit – Fees Illustrated

Export Letter of Credit - Bank Fee Estimator Assumption - $300,000 LC from UAE, payable 90 days OBL, expiry 90 days from date of issuance, one shipment

Advising: $125

Amendment: $75 (only applies if L/C is amended after issuance)

Document exam/payment: $300 (.10% flat, min $175)

Discrepancies: $75 (only applies if your documents contain discrepancies)

Domestic Courier: $20 (to send initial L/C Advise to you

International Courier: $50 (To send documents to Issuing Bank, overseas)

Estimated USA Bank Fees - No Confirmation, No Amendment: $570


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Documentary Letter of Credit – Fees Illustrated

Confirmation: $1,050 By arrangement. Illustrative rate is .35% flat for each 90 day period.Acceptance: $750 By arrangement. Illustrative rate is 1% per annum. Assumed 90 days OBL.Estimated Fees - With Confirmation, No Amendment: $2,370

Discount $1,033 By arrangement. Illustrative rate is 90 Day LIBOR .30 + 1.25%. Assume discount 10 days after acceptance, thus 80 days.

NOTE: Confirmation, Acceptance and Discount Fees quoted are for illustration only. All are indicative rates which would be based upon current assumptions and underwriting and are subject to change

Summary: If you accept an LC payable at 90 days OBL, have that LC confirmed, and also discount the Acceptance, the total fees will be $3403, (1.13% of the face value of the sale). Some possible options to deal with the fees might be: retain fees for your account and be satisfied with netting $297m after bank fees; gross up your price to the buyer to be $303m; require that the LC state all confirmation, acceptance and discounting commissions for the account of the buyer, leaving you to only pay $570.


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Global Trade Finance – Tools and Solutions

Classic Trade Solutions

Imports Letters of credit (LC) Documentary collections

Exports Letters of credit Documentary collections

Standby letters of credit (SBLC)

Bank guarantees

Specialized Trade Solutions

Supply chain finance

Purchase order management (open account)

Structured Trade Solutions

Receivable and payable financing

Export Credit Agency (ECA) backed structured trade: Ex-Im Bank in the USA

Pre-import/export financing structures

Private credit insurance and political risk insurance (PRI)

Financing sales of capital equipment with terms greater than one year

Issuance of standby letters of credit to support bid, performance and payment bonds

Financing of export-related accounts receivable and inventory


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Summary – Global Trade Finance

Key Challenges

■ Arranging financing: for you, your suppliers, your customers

■ Navigating regulations: U.S. and foreign

■ Managing counterparty risk: suppliers and customers

■ Controlling and optimizing cash: reducing DSO and extending DPO

■ Accessing expertise: local market knowledge, best practices

Contact

Martha I Gabrielse, Vice President - Global Trade

JP Morgan Chase Bank, NA

616-771-7410

[email protected]