PEFCO PRIMER
The following is an introduction
to PEFCO and its programs. For details on specific PEFCO facilities,
please see Programs.
PEFCO was incorporated on April 9, 1970
under Delaware law and is principally engaged in making U.S.
dollar loans to foreign importers to finance purchases of
goods and services of United States manufacture or origin.
PEFCO's shareowners include most of the major commercial banks
involved in financing U.S. exports, industrial companies involved
in exporting U.S. products and services, and financial services
companies.
PEFCO was established with the support
of the United States Department of the Treasury and the Export-Import
Bank of the United States ("Ex-Im Bank") to assist in the
financing of U.S. exports through the mobilization of private
capital as a supplement to the financing already available
through Ex-Im Bank, commercial banks, and other lending institutions.
Ex-Im Bank has cooperated in the operation of PEFCO through
various agreements described under "PEFCO's Relationship
with Ex-Im Bank" and in the "Notes to the Consolidated
Financial Statements" (see the current Annual
Report).
Since all loans made by PEFCO are guaranteed
or insured as to the due and punctual payment of principal
and interest by Ex-Im Bankor other U.S. government institutions,
such as the Overseas Private Investment Corporation ("OPIC"),
whose obligations are backed by the full faith and credit
of the United States, PEFCO relies upon this U.S. government
support and does not make evaluations of credit risks, appraisals
of economic conditions in foreign countries, or reviews of
other factors affecting collectibility of its loans.
PEFCO's Lending Programs
Primary
Long-Term Loan Program
PEFCO will commit to finance, at fixed-interest rates, U.S.
exports under long-term Ex-Im Bank guarantees. PEFCO's lending
offers, in the form of legally binding commitments, are available
on the following terms:
1. Fixed-Rate Pricing – PEFCO
will offer a fixed-interest lending rate and will "hold"
the rate for upto 45 days. If, at the time of acceptance
by the borrower, market rates are lower than when the PEFCO
fixed-interest rate was established, PEFCO will provide
the borrower with the lower fixed-interest rate.
2. Deferred Fixed-Rate Pricing –
PEFCO will offer to establish a fixed-interest lending rate
at a future time selected by the borrower based on its standard
formula pricing. Alternatively, PEFCO will offer to lend
at a fixed differential, or spread, over the yield on an
average-life U.S. Treasury yield curve or over the yield
on a specific U.S. Treasury security and "cap"
this fixed differential for specific periods until the borrower
instructs PEFCO to fix the rate. If, on the rate determination
date, PEFCO's standard fixed-rate pricing formula produces
a lower fixed rate, the borrower will be given the advantage
of such lower fixed rate. Deferred Fixed-Rate Pricing permits
a borrower to temporarily finance disbursements using existing
funds, or to use temporary floating-rate financing from
a commercial bank or PEFCO until the PEFCO fixed rate is
established.
PEFCO's fixed-interest lending rate
is based on the estimated cost of funds at the time the rate
is calculated, taking into account the disbursement and repayment
characteristics of the loan. PEFCO's estimated cost of funds
is usually based on the average-life U.S. Treasury yield for
a maturity similar to that of the loan being funded, to which
is added the premium required to place PEFCO's Secured Notes,
warehousing costs, if any, and a modest margin for expenses,
risk, and return to shareowners. The timing of disbursements
of the undisbursed portions of a loan commitment is almost
solely the prerogative of the borrower and is frequently different
from that originally anticipated because of late deliveries
or construction delays. Accordingly, estimates of the timing
of such disbursements are subject to change.
PEFCO charges a commitment fee calculated
on the committed, undisbursed, and uncancelled amount of the
loan commitment.
Once a fixed-interest rate has been
established, a borrower may cancel all or any portion of an
unused loan commitment or prepaytheloan by paying PEFCO a
fee equal to the present value of the reinvestment loss, if
any, which would be incurred by PEFCO as a result of the cancellation
or prepayment.
Secondary
Long-Term Loan Program
PEFCO supports lenders making long-term loans by making or
buying fixed-and floating-rate loans that: (i) are guaranteed
against non-payment with a comprehensive Ex-Im Bank guarantee
or are otherwise insured or guaranteed against all risks by
a U.S. government institution whose obligations are backed
by the full faith and credit of the United States; (ii) have
an original value of more than $10 million; and (iii) were
originally scheduled to be repaid in five years or more. The
Secondary Long-Term Loan Program may be combined with PEFCO's
Primary Long-Term Loans with Deferred Fixed-Rate Pricing to
allow a bank to offer finely priced, floating-rate loans with
very competitively priced, fixed-rate takeout loans and still
meet internal return on asset and return on equity guidelines.
Small
Business Program
PEFCO, in conjunction with Ex-Im Bank, established the PEFCO
Small Business Program to provide banks and other lenders
with a secondary market for short-term and medium-term export
loans and finance leases that are guaranteed or insured against non-payment by
Ex-Im Bank.
Short-Term
Loans
The PEFCO Small Business Program provides lenders with a dependable
buyer of export-related working capital loans and letters
of credit that are guaranteed against nonpayment by Ex-Im
Bank under its Working Capital Guarantee. PEFCO similarly
supports lenders by buying loans which finance short-term
export receivables when those loans are insured against nonpayment
under an Ex-Im Bank documentary, letter of credit or “small
business” enhanced insurance policy.
Working
Capital Loans: Under its Working Capital Facility, PEFCO
purchases participations from lenders making working capital
loans to U.S. exporters, typically small businesses, when
the loans are guaranteed against nonpayment by Ex-Im Bank
under its Working Capital Guarantee. PEFCO purchases the 90%
guaranteed portion of each loan and the lender funds and retains
the risk of the 10% unguaranteed portion. The Working Capital
Facility has a $10,000,000 per-loan maximum, but no minimum.
All purchases are governed by a master loan participation
agreement and are made without recourse to the lender. PEFCO's
Working Capital Facility is designed to be easily accessible,
without imposing administrative or documentation burdens on
lenders. Loans can be structured as revolving lines of credit
or as transaction-specific loans and can include letters of
credit. PEFCO's interest rate is below prime. The lender retains
total control over the loan servicing, documentation and the
Ex-Im Bank guarantee.
Short-Term
Insured Loans
PEFCO's purchase of short-term insured loans offers the lender
complete flexibility when structuring financing insured by
Ex-Im Bank, i.e., the lender can (i) lend directly to the
overseas buyer or foreign bank, (ii) purchase buyer obligations
from the exporter, or (iii) advance funds to the exporter
secured by the buyer obligations. All PEFCO purchases are
“without recourse” to the lender. PEFCO purchases
the insured portion of each loan and the lender funds and
retains the risk of the uninsured balance. All purchases are
governed by a master loan participation agreement. Loans can
be structured as repetitive or single-sale loans. PEFCO's
interest rate conforms to the lender's rate structure, typically
LIBOR plus a spread. The lender retains total control over
the loan servicing, documentation and Ex-Im Bank insurance
policy.
Medium-Term
Loans
The PEFCO Small Business Program provides lenders with a dependable
buyer of multi-year export loans that are insured or guaranteed
against non-payment by Ex-Im Bank under a Medium-Term Comprehensive
Insurance Policy or Medium-Term Comprehensive Guarantee. The
PEFCO Small Business Program is organized into three facilities,
two standard facilities for insured and guaranteed loans,
and a special facility for certain guaranteed fixed-rate loans.
All PEFCO purchases, whether under an insurance policy or
guarantee, are “without recourse” to the lender
and are structurally and administratively identical except
for differences imposed by the requirements of the insurance
policy or guarantee.
All medium-term purchases have a $10,000,000
per-loan maximum and $100,000 per-loan minimum.
The Guaranteed Note Facility is PEFCO’s
core program for purchases of medium-term guaranteed loans.
Interest rates can be floating or fixed with the rate set
at the time PEFCO purchases the note. The lender retains servicing
responsibility for the loan and the Ex-Im Bank guarantee,
but may request that PEFCO collect payments.
The Discount Facility is a special program
under the Guaranteed Note Facility used exclusively for guaranteed
loans requiring a fixed-interest rate to be set prior to the
shipment of the items. Once set, the fixed-interest rate is
held constant until the final disbursement, even when the
note has multiple disbursements, without payment of an up-front
fee. PEFCO always assumes responsibility for collecting payments
under such loans and maintaining the Ex-Im Bank guarantee.
The PEFCO Small Lender Program provides
access to PEFCO’s existing medium-term facilities for
small lenders specializing in small loans that are often not
financed because of their size. The lenders that are eligible
to participate in the Small Lender Program include trade bankers
who have created their own finance companies and small banks.
The PEFCO Stand-In Lender Facility is for lenders not able to make a loan directly. PEFCO will "stand-in" as direct lender on behalf of the original lender. The originating lender must participate in preparing the application to Ex-Im Bank, acquiring related documentation and maintaining the borrower relationship. Lenders ask PEFCO to be the Stand-In Lender for a variety of reasons including loan size or a borrower located outside the lender's marketing area.
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