Business Credit Risk Management webinar from CMA Business Credit Services

1. A Comparison of Techniques for Mitigating Credit Risks CMA Webinar November 30, 2006 Buddy Baker, Atradius Trade Credit Insurance buddy.baker@ atradius .com

2. Identifying Export Risks

4. Identifying Risks in Cross-Border Sales Slow payment/default Bankruptcy Contract repudiation Commercial risk Contract dispute Abusive bond drawing Financing risk Contract risk

5. Identifying Risks in Cross-Border Sales Slow payment/default Bankruptcy Contract repudiation Contract dispute Abusive bond drawing Financing risk Contract risk Commercial risk Foreign exchange control legislation Discharge of debt legislation Government repudiation of debt Payment moratorium Insurrection/overthrow/domestic turmoil Non-payment due to war Non-payment due to natural disasters Country risk Political risk Currency inconvertibility Transfer/economic risk

6. Identifying Risks in Cross-Border Sales Slow payment/default Bankruptcy Contract repudiation Contract dispute Abusive bond drawing Financing risk Contract risk Commercial risk Foreign exchange control legislation Discharge of debt legislation Government repudiation of debt Payment moratorium Insurrection/overthrow/domestic turmoil Non-payment due to war Non-payment due to natural disasters Country risk Political risk Currency fluctuation/devaluation FX risk Currency inconvertibility Transfer/economic risk

10. Risk Mitigation Techniques

12. Risk Mitigation Techniques

14. How Letters of Credit Work: Theory Buyer Seller Contract Buyer’s Bank Letter of Credit Application

15. How Letters of Credit Work: Theory Buyer Seller Contract Buyer’s Bank Letter of Credit Application Letter of Credit

16. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Letter of Credit 3 parties 3 independent contracts

17. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Letter of Credit Principles of Letters of Credit: Independent and Documentary Goods Documents

18. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Documents Letter of Credit Goods Payment

19. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Documents Letter of Credit Goods Documents Payment Debit

20. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Documents Documents Payment Debit Letter of Credit Goods

21. How Letters of Credit Work: Reality Foreign Buyer Buyer’s Bank Advising Bank Seller’s Bank Seller Negotiating Bank Freight Forwarder Reimbursing Bank Contract L/C Appli-cation Docu-ments L/C L/C L/C L/C & Documents Documents Payment Payment Reimbursement Authorization Reimbursement Goods Goods Reimbursement Claim Debit

22. Risk Mitigation Techniques 7. A receivable in a foreign currency made be sold, including the remaining currency fluctuation risk. 8. FX exposure depends on the currency of the credit.

23. Risk Mitigation Techniques 1. It may be possible for the applicant to obtain a court injunction to stop payment of a non-negotiable L/C.

26. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Documents Documents Debit Letter of Credit Goods Payment

27. How Confirmed Letters of Credit Work Buyer Seller Docu-ments Pay- ment Goods Contract Confirming Bank L/C L/C Debit Documents Payment Buyer’s Bank L/C Appli-cation Docu-ments

28. Risk Mitigation Techniques

32. How Commercial Letters of Credit Work Seller Buyer Negotiating Bank Docu-ments Goods Contract Debit Documents Payment Pay- ment Buyer’s Bank L/C Appli-cation L/C Advising Bank L/C Docu-ments

33. Risk Mitigation Techniques

41. How Letters of Credit Work: Theory Buyer Buyer’s Bank Seller Contract Letter of Credit Application Documents Documents Payment Debit Letter of Credit Goods

42. How Standby Letters of Credit Work Applicant Applicant’s Bank Beneficiary Contract Letter of Credit Application Letter of Credit Payment

43. How Standby Letters of Credit Work Applicant Applicant’s Bank Beneficiary Contract Letter of Credit Application Letter of Credit Documents Documents Payment Debit

44. Risk Mitigation Techniques 2. Preferential payment risk exists unless the standby is properly worded. 3. Country risks are covered if the L/C is confirmed by a “developed-world” bank. [7. A receivable in a foreign currency made be sold, including the remaining currency fluctuation risk.]

46. Standby L/Cs vs. Guarantees & Bonds Standby L/C Demand Guarantee Accessory/Contract Guarantee, Surety Bond Independent & payable against documents Independent & payable against documents Specified amount Specified amount Payable upon occurrence of specified event Amount of damages (usually with a maximum) Specified expiry Usually has a specified expiry Expiry event Rules: UCP or ISP (and UCC5 in the U.S.) Rules: URDG, ISP, or local law Rules: Local law

47. Risk Mitigation Techniques 4. Country risks are covered if the guarantee is a ‘local guarantee’. 5. If the principal repudiates the contract, the guarantor may do the same. Be sure you know which kind of guarantee you’re dealing with

49. How Documentary Collections Work: Sight Drafts Buyer Seller Contract

50. How Documentary Collections Work: Sight Drafts Buyer Seller Contract Goods

51. How Documentary Collections Work: Sight Drafts Buyer Seller Contract Buyer’s Bank Documents Goods

52. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Documents Payment Goods

53. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Documents Payment Documents Goods

54. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Documents Documents Payment Goods

55. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Documents Documents Payment Goods

56. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Goods Documents Documents Payment Payment

57. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Goods Payment Documents Documents Payment

60. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Goods Payment Documents Documents Payment

61. How Documentary Collections Work: Sight Drafts Buyer Buyer’s Bank Seller Contract Documents Payment Goods

62. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Accepted Draft Goods

63. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Goods Accepted Draft Documents

64. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Goods Accepted Draft Documents

65. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Goods Documents Accepted Draft Documents

66. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Goods Accepted Draft Documents Payment

67. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Payment Goods Accepted Draft Documents Accepted Draft

68. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Payment Accepted Draft Goods Payment Accepted Draft Documents

69. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Payment Documents Payment Accepted Draft Goods Accepted Draft Documents

70. How Documentary Collections Work: Time Drafts Buyer Buyer’s Bank Seller Contract Documents Accepted Draft Goods

71. How Documentary Collections Work: Avalized Drafts Buyer Buyer’s Bank Seller Contract Goods Documents adds aval Accepted Draft

72. How Documentary Collections Work: Avalized Drafts Buyer Seller Contract Documents Avalized Draft Documents Buyer’s Bank Goods Accepted Draft

73. How Documentary Collections Work: Avalized Drafts Buyer Buyer’s Bank Seller Contract Avalized Draft Documents Goods Accepted Draft Documents Payment

74. How Documentary Collections Work: Avalized Drafts Buyer Buyer’s Bank Seller Contract Avalized Draft Documents Payment Goods Accepted Draft Documents Payment Avalized Draft

75. Risk Mitigation Techniques

77. Risk Mitigation Techniques

80. Risk Mitigation Techniques

83. Risk Mitigation Techniques 6. Contract repudiation insurance is available as separate coverage.

86. Risk Mitigation Techniques

89. Risk Mitigation Techniques

90. Commercial Letters of Credit

91. Standby Letters of Credit & Demand Guarantees

92. Forfaiting

93. Sale of Receivables

94. Credit Insurance

95. Credit Derivatives

96. Foreign Exchange Contracts

98. November 30, 2006 - CMA Webinar – Buddy Baker Black Slide