Ex-Im-and-Trade-Finance-Overview-March-2011.ppt

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© 2010 J.P.Morgan Chase and Co. All rights reserved.
Export Financing:
Export-Import Bank of the United States
March, 2011
JPMorgan Chase Bank, N.A. Member FDIC

© 2010 J.P.Morgan Chase and Co. All rights reserved. 1
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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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L Structured Trade Solution – Export-Import Bank
Export 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)
76

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L 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 India
Transaction: Working Capital Guaranteed Loans
Export Sales: $72 million
Jobs 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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L 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)
Senior
Executives
Cash
Land &
Buildings
Mach
&
Equip Inventories
Accounts
Receivable

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NEW SALES NECESSARY TO REPLACE A CREDIT LOSS
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
$12,000
$13,000
$100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000
The lower the Gross
Margin %, the more new
sales required to recoup
a credit loss.
SALES
(‘000)
CREDIT LOSS (‘000)
5% Gross Margin
10% Gross Margin
20% Gross Margin
30% Gross Margin

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L 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 Risk
March, 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
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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
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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
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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 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’s
Bank
SELLER’s
Bank
SELLER
Port
Documents Documents Documents
1
2
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4
5
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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’s
Bank
SELLER’s
Bank
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 Credit
Advice 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
Seller Buyer/Issuing Bank
Advising/
Presenting Bank Reimb. Bank
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Days ? ? ? ? ? ? ? ?
1 2 3 4 5 6 7 8
1. Buyer/Seller Negotiate Contract and LC Terms
2. Buyer applies for LC; issued by buyer's bank
3. US bank receives LC, processes, and transmits to seller
4. Seller produces or secures goods; arranges shipment
5. Seller presents LC documents to the bank
6. Bank examines documents
7. Bank claims reimbursement; reimbursing bank remits funds
8. Funds are paid to exporter
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
martha.i.gabrielse@jpmchase.com

Ex-Im-and-Trade-Finance-Overview-March-2011.ppt

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