CMA Webinar - 8 October 2009 MANAGING INTERNATIONAL CREDIT RISK DURING THE ECONOMIC DOWNTURN AND THE COMING RECOVERY PRESE...
<ul><li>Amidst the challenges in the world’s present economic  </li></ul><ul><li>situation, there are also opportunities f...
<ul><li>The U.S. economy is projected to continue declining for some  </li></ul><ul><li>time before it begins to recover, ...
<ul><li>Little or no SME lending by local banks </li></ul><ul><li>Limited access to capital from non-bank lenders </li></u...
<ul><li>Voluntary bankruptcy </li></ul><ul><li>Involuntary receivership </li></ul><ul><li>Other forms of insolvency (e.g. ...
<ul><li>High interest rates from local banks and other lenders </li></ul><ul><li>Limited access to longer-term financing <...
<ul><li>Customer bankruptcy, receivership, or insolvency </li></ul><ul><li>Protracted slow payment for any number of reaso...
<ul><li>Europe Latin America </li></ul><ul><ul><li>Northern Europe   Mexico </li></ul></ul><ul><ul><li>Southern Europe   B...
Sources of Int’l Credit Information <ul><li>Trade supplier credit references </li></ul><ul><li>Credit agency reports </li>...
Credit Risk Mitigation <ul><li>Cash-in-advance or partial deposits </li></ul><ul><li>Usance or standby letters of credit <...
<ul><li>While constrained by increasing claim activity, contracting  </li></ul><ul><li>reinsurance capacity, and other fac...
<ul><li>Insureds with existing policies receiving favorable treatment </li></ul><ul><li>Strong preference for multiple-buy...
<ul><li>Increasing market share for Ex-Im Bank and other ECAs despite limitations of content requirements </li></ul><ul><l...
<ul><li>TRADE FINANCE </li></ul><ul><ul><li>Cross-Border Equipment Financing </li></ul></ul><ul><ul><li>Foreign Buyer Cred...
<ul><ul><li>Meridian Finance Group </li></ul></ul><ul><ul><li>1247 7th Street, Suite 200 </li></ul></ul><ul><ul><li>Santa ...
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Managing International Credit

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Information on how to manage credit risk during the economic downturn and recovery. Topics include exporting, purchasing power, credit demand, and risks.

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Managing International Credit

  1. 1. CMA Webinar - 8 October 2009 MANAGING INTERNATIONAL CREDIT RISK DURING THE ECONOMIC DOWNTURN AND THE COMING RECOVERY PRESENTED OCTOBER 2009 BY GARY MENDELL MERIDIAN FINANCE GROUP
  2. 2. <ul><li>Amidst the challenges in the world’s present economic </li></ul><ul><li>situation, there are also opportunities for growth. The global </li></ul><ul><li>financial crisis is not affecting every sector of the real </li></ul><ul><li>economy. Many companies will continue to grow and in </li></ul><ul><li>many cases their growth will come from export sales. </li></ul><ul><li>While total export volumes may fall short of </li></ul><ul><li>earlier projections, worldwide market </li></ul><ul><li>demand for goods and services will continue </li></ul><ul><li>to engender a considerable amount of </li></ul><ul><li>international trade, and even expansion </li></ul><ul><li>in some sectors. </li></ul><ul><li>  </li></ul>Exporting in the Economic Downturn
  3. 3. <ul><li>The U.S. economy is projected to continue declining for some </li></ul><ul><li>time before it begins to recover, but with just five percent of </li></ul><ul><li>the world’s population and less than one-quarter of global </li></ul><ul><li>GDP, the U.S. is not the only country with purchasing power. </li></ul><ul><li>While all countries are linked to some degree </li></ul><ul><li>by economic interdependence, different cultural, </li></ul><ul><li>political, and market forces will lead Europe, </li></ul><ul><li>Asia, Latin America, and other regions each </li></ul><ul><li>on their own trajectory during the present </li></ul><ul><li>downturn and into the coming recovery. </li></ul>Purchasing Power in Other Countries
  4. 4. <ul><li>Little or no SME lending by local banks </li></ul><ul><li>Limited access to capital from non-bank lenders </li></ul><ul><li>Currency exchange/transfer controls </li></ul><ul><li>Inability to remit cash in advance </li></ul><ul><li>Bank fees/rates too high to open L/Cs </li></ul><ul><li>Pushing you and other suppliers as a competitive tactic </li></ul><ul><li>Need for working capital via longer payment terms </li></ul><ul><li>Making credit a condition for representation </li></ul><ul><li>Maintaining in-country supply chains </li></ul><ul><li>Keeping doors open in strategic markets </li></ul>Credit Demand During Downturn
  5. 5. <ul><li>Voluntary bankruptcy </li></ul><ul><li>Involuntary receivership </li></ul><ul><li>Other forms of insolvency (e.g. just closing the doors) </li></ul><ul><li>Protracted slow payment for any number of reasons </li></ul><ul><li>Cash flow problems </li></ul><ul><li>General economic conditions in export markets </li></ul><ul><li>Currency fluctuations </li></ul><ul><li>Foreign exchange/transfer controls </li></ul><ul><li>Expropriation and other risks to assets </li></ul><ul><li>War, strikes, civil strife, political violence </li></ul>Export Credit Risks in Downturn
  6. 6. <ul><li>High interest rates from local banks and other lenders </li></ul><ul><li>Limited access to longer-term financing </li></ul><ul><li>Desire for working capital via longer payment terms </li></ul><ul><li>Refusal to pay cash in advance </li></ul><ul><li>Unwillingness to absorb fees/hassles of opening L/Cs </li></ul><ul><li>Pushing you and other suppliers as a competitive tactic </li></ul><ul><li>Making credit a condition for distribution </li></ul><ul><li>Insisting on terms for stocking inventory </li></ul><ul><li>Credit to facilitate supply chain benefits </li></ul><ul><li>Building brand recognition in other countries </li></ul><ul><li>Expanding share in new strategic markets </li></ul>Credit Demand During Recovery
  7. 7. <ul><li>Customer bankruptcy, receivership, or insolvency </li></ul><ul><li>Protracted slow payment for any number of reasons </li></ul><ul><li>Balance sheet issues (working capital, leverage, etc.) </li></ul><ul><li>General economic conditions in export markets </li></ul><ul><li>General economic conditions in domestic markets </li></ul><ul><li>Inflation risk (hot economy, currency devaluations, etc.) </li></ul><ul><li>Over-anticipation of demand for products </li></ul><ul><li>Superior selling by local/foreign competition </li></ul><ul><li>Payment delays caused by exchange controls </li></ul><ul><li>Changes in import or export regulations </li></ul><ul><li>Trade sanctions, embargoes, etc. </li></ul>Export Credit Risks for Recovery
  8. 8. <ul><li>Europe Latin America </li></ul><ul><ul><li>Northern Europe Mexico </li></ul></ul><ul><ul><li>Southern Europe Brazil </li></ul></ul><ul><ul><li>Eastern Europe Chile </li></ul></ul><ul><ul><li> Colombia </li></ul></ul><ul><li>Asia Peru </li></ul><ul><ul><li>Japan Argentina </li></ul></ul><ul><ul><li>China Ecuador </li></ul></ul><ul><ul><li>India Venezuela </li></ul></ul><ul><ul><li>Pacific Rim Bolivia </li></ul></ul><ul><ul><li> Central America </li></ul></ul><ul><li>Middle East </li></ul><ul><li> Saudia Arabia/UAE Africa </li></ul><ul><ul><li>Turkey Sub-Saharan </li></ul></ul><ul><ul><li>Israel Southern Africa </li></ul></ul>Credit Overview by Region
  9. 9. Sources of Int’l Credit Information <ul><li>Trade supplier credit references </li></ul><ul><li>Credit agency reports </li></ul><ul><li>Financial statements </li></ul><ul><li>Bank references (limited availability and usefulness) </li></ul><ul><li>Industry-specific creditor groups </li></ul><ul><li>Specialized industry resources </li></ul><ul><li>Personal visits (essential ahead of recovery) </li></ul><ul><li>Time in business </li></ul><ul><li>Local reputation, market share, etc. </li></ul><ul><li>On-line, legal, news-wire info </li></ul><ul><li>Juxtaposition of all of the above </li></ul>
  10. 10. Credit Risk Mitigation <ul><li>Cash-in-advance or partial deposits </li></ul><ul><li>Usance or standby letters of credit </li></ul><ul><li>Notes, drafts, documentary collections </li></ul><ul><li>Payment from bank account in USA </li></ul><ul><li>Direct revenue remittances </li></ul><ul><li>Legal/enforceable documents </li></ul><ul><li>Linguistic competence </li></ul><ul><li>Export credit insurance: </li></ul><ul><li>protects foreign receivables against virtually all commercial/political non-payment risks </li></ul>
  11. 11. <ul><li>While constrained by increasing claim activity, contracting </li></ul><ul><li>reinsurance capacity, and other factors engendered by the </li></ul><ul><li>economic downturn, export credit insurance underwriters </li></ul><ul><li>remain active and to the extent possible are rising to the </li></ul><ul><li>challenge of continuing to support international trade credit. </li></ul><ul><li>No insurers have entirely exited the trade credit market </li></ul><ul><li>Several insurers have expanded their trade credit products </li></ul><ul><li>Non-cancelable limits are still available </li></ul><ul><li>ECAs especially supporting their exporters </li></ul><ul><li>Private sector still perceives growth market </li></ul>Export Credit Insurance - Update
  12. 12. <ul><li>Insureds with existing policies receiving favorable treatment </li></ul><ul><li>Strong preference for multiple-buyer spreads of risk </li></ul><ul><li>Less interest in underwriting single-buyer coverage </li></ul><ul><li>Lender preference for ECAs but content issues limit utility </li></ul><ul><li>In some cases irrational concerns regarding private sector </li></ul><ul><li>Some applications being submitted too late vs credit issues </li></ul><ul><li>Non-cancelable limits available but hard to underwrite </li></ul><ul><li>Policies with cancelable limits exercising that option </li></ul><ul><li>Higher premium rates and deductibles </li></ul><ul><li>Larger discretionary limits to address demand </li></ul><ul><li>Unprecedented increase in market awareness </li></ul>Export Credit Insurance Trends
  13. 13. <ul><li>Increasing market share for Ex-Im Bank and other ECAs despite limitations of content requirements </li></ul><ul><li>Growth also in use of private-sector coverage, especially for experienced exporters with cogent credit procedures </li></ul><ul><li>Trend towards underwriting exporter credit procedures, performance, and cogency of underlying transactions in addition to stand-alone creditworthiness of foreign buyers </li></ul><ul><li>It will be a long time before underwriting </li></ul><ul><li>returns to exuberance of a few years ago </li></ul><ul><li>Strategic projection is for significant growth </li></ul>Export Credit Insurance Outlook
  14. 14. <ul><li>TRADE FINANCE </li></ul><ul><ul><li>Cross-Border Equipment Financing </li></ul></ul><ul><ul><li>Foreign Buyer Credit Facilities </li></ul></ul><ul><ul><li>Note Purchase Agreements </li></ul></ul><ul><ul><li>Custom Financing Structures </li></ul></ul><ul><li>INSURANCE </li></ul><ul><ul><li>Export Credit Insurance </li></ul></ul><ul><ul><li>Political Risk Coverage </li></ul></ul><ul><ul><li>Domestic Receivables Insurance </li></ul></ul><ul><ul><li>Policies for Financial Institutions </li></ul></ul>Meridian Finance Group
  15. 15. <ul><ul><li>Meridian Finance Group </li></ul></ul><ul><ul><li>1247 7th Street, Suite 200 </li></ul></ul><ul><ul><li>Santa Monica, CA 90401 </li></ul></ul><ul><ul><li>Tel: 310 260 2130 </li></ul></ul><ul><ul><li>Fax: 310 260 2140 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>www.meridianfinance.com </li></ul></ul>For More Information:

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