Financing Exports: Government and Multinational Programs

University of Miami Law School Institutional Repository University of Miami Inter-American Law Review 10-1-1979 Financing Exports: Government and Multinational Programs Peter A. Hornbostel Follow this and additional works at: http://repository.law.miami.edu/umialr Part of the International Trade Commons Recommended Citation Peter A. Hornbostel, Financing Exports: Government and Multinational Programs, 11 U. Miami Inter-Am. L. Rev. 285 (1979) Available at: http://repository.law.miami.edu/umialr/vol11/iss2/3 This Article is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami InterAmerican Law Review by an authorized administrator of Institutional Repository. For more information, please contact . Financing Exports: Government and Multinational Programs PETER A. HORNBOSTEL* I. INTRODUCTION This discussion concerns export financing and will deal principally with the Export-Inport Bank of the United States (Exiinbank)1 and, to a lesser extent, with other federal government programs, such as the Overseas Private Investment Corporation (OPIC) 2 and the Agency for International Development (AID). 3 Eximbank has a plethora of financing programs, ranging from the very short-term to long-term, up to twelve or fourteen years. In dollar terms, most Eximbank financing (perhaps two-thirds) is of a longterm nature, and I anticipate that most of you will be more interested in this type of financing, especially if you are representing foreign borrowers or suppliers of major equipment. The shorter and medium-term financing plans would be of greater interest to those representing banks or small suppliers; I will not discuss those prograins. II. EXIMBANK LONG-TERM FINANCING A. Obtaining the Preliminary Commitment Attorneys representing a foreign borrower will almost certainly be interested in looking for long-term financing from Eximbank. The borrower will usually be involved in a project of some sort; for example, he may be involved in constructing a petrochemical plant, a cement plant, a steel mill. In other cases, the borrower will be pur- *Cameron, Hornbostel, and Adelman, Washington, D.C. Mr. Hornbostel is a graduate of Columbia University Law School and also studied at the University of Vienna, Austria. Formerly a legal advisor to the Agency for International Development in Brazil and Washington, he has been engaged in the practice of law in Washington for over ten years specializing in international transactions involving Latin America. 1. 12 U.S.C.A. § 635-635n. (West Supp. 1979). For legislative history see generally [1953] U.S. CODE CONG. & AD. NEws 1643; [1974] U.S. CODE CONG. & AD. NEWS 2711. 2. Overseas Private Investment Corporation, 22 U.S.C. §§ 2191-2200a (1970). For legislative history see [1969] U.S. CODE CONG. & AD. NEWS 2611. 3. See Exec. Order No. 10,973, 3 C.F.R. 493 (1961), reprinted in 22 U.S.C. § 2381 (1970). LAWYER OF THE AMERICAS chasing non-project products, such as airplanes, locomotives or railroad cars. The first step generally taken in arranging for this type of Eximbank financing is to obtain a preliminary commitment, 4 which will set out and guarantee the terms of the transaction. While it is not required that you obtain a preliminary commitment, it is often advantageous to do so. For example, if a borrower has a preliminary commitment at a time when the interest rates from Eximbank-which today run somewhere between eight and nine percent-are rising, that borrower will receive the rate of interest established in the commitment, as long as the borrower's application for the final commitmnent is filed timely. 5 Eximbank requires the following information from a borrower seeking a preliminary commitment: the name and address of the borrower; the purpose of the proposed financing; the foreign country involved; a description of the equipment or services to be purchased with the financing; a copy, of the bid documents, if the borrower is responding to a bid invitation; the latest audit and financial statements of the borrower; and the nature of the security or guaranty, if any, that the borrower is going to provide. 6 The Bank will also request the borrower's projected financial data for the next five years. 7 Although Eximbank may want this information, it is often virtually impossible to produce. I have never given the Bank such data at the preliminary commitment stage. Further, such information is not very useful where the borrower is a young company just getting started. In such a situation, any kind of guess as to a five year projection of earnings is exactly that: a guess. Eximbank can guess that just as well as the borrower. Nonetheless, the Bank likes to have a piece of paper showing the borrower's anticipated earnings, if only so that if questioned by Congress or government auditors, Eximbank can refer to the projection and say that the loan has good possibilities of repayment. I As I have said, I do not usually 4. See 12 C.F.R. § 401.1(c)(5) (1978); Streng, Export Financing, 11 SAN DIEGO L. REV. 104, 113 (1973). 5. i. 6. 12 U.S.C.A. § 635(b)(3)(A) and (B) (West Supp. 1979); 12 C.F.R. § 401.2 (1978). See also Export-Import Bank of the United States, EXIMBANK-How IT WOnKs 2. 7. Id. 8. 12 U.S.C.A. § 635j(3) (West Supp, 1979) requires a quarterly report to Congress covering Eximbank activities, FINANCING EXPORTS give the Bank an earnings projection at the early stages, but it will be definitely required by the final commitment stage. Thus, the borrower will eventually have to invent such a thing. The preliminary commitment may be very important to a potential supplier at the initial stage, where he, as a supplier, is bidding for an overseas project. Quite often, in South America and elsewhere around the world, bidders are requested to provide not only the prices for their equipment, but also to provide evidence concerning the financing arrangements available. In this situation, the attorney for the supplier should ask Eximbank, on behalf of the supplier, for a preliminary commitment. This may even be done without the borrower's foreknowledge. With the commitment in hand, which costs nothing, the bidder will now be able to compete with all others vying for the project. There can be a problem with this approach, particularly when it is done without the knowledge of the potential borrower in the foreign country. The problem involves the requirements of the 1974 amendments to the Export Import Bank Act, which require that certain large loans and guarantees issued by Eximbank be reviewed by Congress. 9 We recently represented the metropolitan transportation company in Rio de Janeiro which had submitted a loan application to Eximbank. The requested amount had been carefully tailored so that it was below the cut-off for the congressional review requirement. Without my knowledge, however, the potential suppliers for another stretch of the track for the same company ha (...truncated)