About -PEFCO’s Funding Activities-
PEFCO manages the liquidity and interest rate exposures arising from loan assets and unfunded loan commitments through the combination of short term funding, secured note issuances and interest rate derivatives. This approach allows for targeting the proper liquidity profile, while controlling exposure to market fluctuations. For fixed rate loan commitments, PEFCO hedges the loan pricing at the time that a borrower accepts a fixed rate loan offer, either through specific hedging actions or within the context of managing the interest rate risk in the overall book. In cases where a derivative hedge is utilized, PEFCO hedges the fixed rate loan commitments using interest rate swaps in advance of loan funding to immunize the interest rate exposure. In cases where a cash hedge is utilized for fixed rate loan commitments, PEFCO issues term funding and investments in U.S. Government Securities for the warehousing period prior to loan funding.
This approach allows for flexibility in accommodating a range of disbursement schedules. The impact of warehousing may reduce earnings during the warehousing period prior to disbursement of funds, which is incorporated into the loan pricing.
Secured Note Issuances
For longer term U.S. dollar funding requirements,
PEFCO issues secured notes in public markets through
underwriters. The Secured Note Program is issued
through a trust arrangement on the books of Private
Export Funding Corporation under the Indenture, dated
June 15, 1975, as supplemented and amended (the
"Indenture"). The principal repayments for the Secured
Notes are backed by foreign importer notes - export
loans guaranteed by Ex-Im Bank - and investment
securities explicitly backed by the full faith and credit
of the U.S. For each Secured Note issue, the principal
cash flows backing the principal must mature prior to
the maturity date for redemption of the Secured Note
principal. Pledged assets are assigned to and held
by The Bank of New York Mellon (a shareowner of
PEFCO), as Trustee, as collateral for the benefit of the
holders of PEFCO Secured Notes. Foreign importer
notes pledged against the notes are backed by the 1971 Guarantee Agreement between Ex-Im Bank and
PEFCO. Interest paid on the Secured Note Program is
explicitly guaranteed by Ex-Im Bank, as specified in the
1971 Guarantee & Credit Agreement.
As of September 30, 2011, PEFCO had issued $13.6 billion aggregate principal amount of Secured Notes, of which $4.5 billion aggregate principal amount were outstanding, currently rated, Aaa, by Moody's and AA+,by Standard & Poor's.
Short-Term Borrowings
PEFCO raises short term liquidity to finance loan
commitments through the issuance of commercial
paper. As of September 30, 2011, PEFCO received
short term ratings of P-1 by Moodys' and A-1 by
Standard & Poor's. In 2011, PEFCO established a new
$940 million 364 day facility maturing on June 9, 2012 and a $235 million three year facility maturing on June
10, 2014. In addition, PEFCO has an existing $270
million three year facility maturing on June, 2013. The
combined total of all three facilities is $1,445 million. Of
the seventeen lenders across the three credit facilities,
nine are shareholders of PEFCO. The credit agreements
contain a number of covenants, including a covenant
that PEFCO comply with its contractual commitments
with Ex-Im Bank, with customary exceptions. As of
September 30, 2011, there were no amounts
outstanding under any of the credit agreements. In
addition, there were no amounts drawn under any of
the credit agreements during fiscal year 2011.
Certain underwriters of PEFCO Secured Notes, certain dealers of PEFCO short-term notes, and certain participants in the 364 day and three year syndicated credit agreements are shareowners (or their affiliates are shareowners) of PEFCO. Certain officers of certain shareowners also serve as Directors of PEFCO as described herein. Certain shareowners have provided and presently provide a variety of commercial banking services to PEFCO.