Sep 26 | 2019
Ex-Im Bank Logjam Begins to Clear, for Now
By Lori Musser
Big projects are back on the table for U.S. businesses. U.S. companies that haven’t been able to provide national-level export credit agency financing to secure overseas projects since 2015 are back in the game.
Without a quorum, the Export-Import Bank of the United States, or Ex-Im Bank, wasn’t able to make deals above US$10 million. Unable to approve these larger transactions, the bank also couldn’t authorize any new long-term financing. It was unable to operate at full capacity, shutting U.S. businesses out of the competition for global projects, and ultimately sending U.S. jobs to other countries with better access to financing.
Those companies with a significant overseas presence, including the largest engineering, procurement and construction companies, had a work-around. They simply shifted their bids to their base of business in other countries. If they won the contract, they had to use the supply chains – including manufactured content – of the other country/countries. The many small and medium-sized U.S. businesses that typically provide components for big international projects were out of luck. For more than three years.
Today, the Ex-Im Bank is able to perform all its duties. There may be a small hiccup this fall as reauthorization is due, but there is also reason for optimism.
A Far Better Place
“We are in a much different place than we were a year ago in the capital projects industry,” said Capt. William G. Schubert, former administrator, U.S. Maritime Administration, and current president of International Trade & Transportation, a Houston-based export credit agency finance and maritime transportation consultancy. “There are enough Ex-Im Bank board members to start to clear the backlog of transactions. We have a quorum now and the new members are all exceptionally qualified.” He suggested the Ex-Im Bank in place today may be even stronger than in 2015.
At its July 31 meeting, the new board’s light agenda addressed, among other items, two global infrastructure division files requiring preliminary approvals, one for civil engineering equipment being purchased by the Special Council Fund for Mutual Assistance in Cameroon, and the other for gas processing equipment being purchased by Iraq’s Ministry of Oil.
At its next meeting the board is expected to begin tackling what has become, according to newly appointed President and Chairman Kimberly A. Reed, a backlog of nearly US$40 billion in transactions that would support more than a quarter-million jobs.
In her speech at the TXF Global Conference in Berlin on June 12, Reed said: “We also expect an influx of applications, now that the board is back. The plan is to work through the applications at a thoughtful and reasonable pace. We expect the board will vote on some of them before the end of the summer.”
Reed did not say the files would be processed in a hurry. She cautioned that “protecting the interests of U.S. taxpayers is still paramount to us. The fact that the bank has a default rate of 0.5 percent shows the prudence of Ex-Im’s staff.”
Schubert added: “It is anticipated that the board will begin moving on to some of the larger transactions in August.” He noted that transactions above US$100 million get referred for oversight and a 30-day comment period.
Among the often-unsung benefits of the bank are the follow-on benefits. Schubert said: “It is not just selling a billion-dollar project; it is the supplies, spare parts, the operations and maintenance, and all the other sales. If you win the initial project, you also have ability to win 10 to 20 years of additional business.”
Damage Done
During the years the Ex-Im Bank operated without teeth, tangible and intangible damage was bound to accumulate.
Ex-Im Bank’s 2018 Competitiveness Report, released in June 2019, concluded that the export credit agencies of nations around the globe didn’t sit still while the U.S. Ex-Im Bank was stymied. They moved ahead, picking up ground that the U.S. may not get back.
The U.S. Ex-Im Bank reported on fundamental changes in officially supported export finance over the last decade. “During this time frame, export-led growth has become a key priority of many governments. Export credits agencies, or ECAs, are being viewed by governments as tools to achieve national strategic goals and to close the financing gap between the creditworthiness of an export-finance transaction and the commercial bankability. Today, there are 112 ECAs worldwide, up from 95 in 2017.”
In the report, Chairman Reed is quoted: “[It] illustrates the breadth and depth of the involvement of governments, especially China, in promoting and financing the exports from their countries. The performance of China’s export credit system has triggered the governments of other countries to respond defensively by changing their policies and programs or risk their exporters losing access to large swaths of global markets.”
Key findings of the report include:
• Governments today are not only supporting their exports through ECAs, but are increasingly focused on expanding future exports through a whole-of-government approach that involves other types of support.
• Other nations are doing more to support their exports, with more providers, more recipients of official support, more aggressive terms, more types of financing products and programs, and more proactive strategies.
• China’s trade support has trended upward for 10 years, reaching roughly US$39 billion in 2018. The next-highest levels were recorded by Italy (US$12.4 billion), Germany (US$12 billion), and Korea (US$10.6 billion). U.S. support was US$300 million.
John Schuster, founder and president of JLS Capital Strategies LLC, and former vice president and head of the structured finance division of U.S. Ex-Im Bank, spoke to Todd Alexander of Norton Rose Fulbright on project finance. He described the damage done by the prolonged inaction of the Ex-Im Bank. In addition to the loss of profit, which would have accrued to the American people, there was tangible job loss as U.S. manufacturers and others were cut out of supply chains. Less tangible damage revolves around Ex-Im Bank’s ability to pick up the pieces after losing key personnel and market trust. “The bank does not have the personnel it used to, so expertise will be stretched,” Schuster said.
And then, of course, the risk of future mischief persists.
September Reauthorization
Ex-Im Bank is reauthorized every four years, and it is set to expire Sept. 30, 2019. This time around, “there is no question about the rechartering passing,” Schubert said.
Addressing the issue at June’s TXF Global Conference, Reed said: “I look forward to engaging with both the House and Senate on reauthorizing the bank – and in making the bank even better by implementing positive reforms that increase transparency and effectiveness.”
“We know how important it is for this next reauthorization to provide private industry certainty in the marketplace – and the timeline needed for planning the allocation of capital,” Reed said.
Bipartisan support for a reauthorization bill and an upbeat and positive new Ex-Im leadership will secure the reauthorization, Schubert said, but it may not happen before the end of September.
If Congress does not reauthorize the bank by then, Ex-Im Bank will service its existing obligations, but will, temporarily, be unable to approve new loans, guarantees or insurance commitments.
When authorization lapsed in the latter half of 2015, reauthorization was added to the Fixing America’s Surface Transportation Act.
There have been major changes in global ECA finance since the last lapse of Ex-Im Bank’s authorization, and while U.S. ability to win business overseas is vital, the new game changer is that national security is being bundled into export credit. A U.S. presence in strategic places is important, and Ex-Im finances a part of that presence, just as the ECAs of other countries do.
At Ex-Im Bank’s 2019 annual conference in March, National Economic Council Director Larry Kudlow said that Ex-Im is needed in the current trade environment, particularly with respect to China, in order for the U.S. to compete and succeed internationally.
“Ex-Im Bank can be working with us and helping American interests around the world because the geopolitics have gotten much tougher, and the competition has gotten much tougher. And, yes, a lot of this, too, revolves around China,” Kudlow said.
“This is an export credit lending matter that we believe will be very helpful in the new tougher global competition. You are a financial tool and a national security weapon.”
If only for that reason, it is unlikely that Congress will dawdle too long on reauthorization.
Based in the U.S., Lori Musser is a veteran shipping industry writer.
Image credit: Shutterstock
Big projects are back on the table for U.S. businesses. U.S. companies that haven’t been able to provide national-level export credit agency financing to secure overseas projects since 2015 are back in the game.
Without a quorum, the Export-Import Bank of the United States, or Ex-Im Bank, wasn’t able to make deals above US$10 million. Unable to approve these larger transactions, the bank also couldn’t authorize any new long-term financing. It was unable to operate at full capacity, shutting U.S. businesses out of the competition for global projects, and ultimately sending U.S. jobs to other countries with better access to financing.
Those companies with a significant overseas presence, including the largest engineering, procurement and construction companies, had a work-around. They simply shifted their bids to their base of business in other countries. If they won the contract, they had to use the supply chains – including manufactured content – of the other country/countries. The many small and medium-sized U.S. businesses that typically provide components for big international projects were out of luck. For more than three years.
Today, the Ex-Im Bank is able to perform all its duties. There may be a small hiccup this fall as reauthorization is due, but there is also reason for optimism.
A Far Better Place
“We are in a much different place than we were a year ago in the capital projects industry,” said Capt. William G. Schubert, former administrator, U.S. Maritime Administration, and current president of International Trade & Transportation, a Houston-based export credit agency finance and maritime transportation consultancy. “There are enough Ex-Im Bank board members to start to clear the backlog of transactions. We have a quorum now and the new members are all exceptionally qualified.” He suggested the Ex-Im Bank in place today may be even stronger than in 2015.
At its July 31 meeting, the new board’s light agenda addressed, among other items, two global infrastructure division files requiring preliminary approvals, one for civil engineering equipment being purchased by the Special Council Fund for Mutual Assistance in Cameroon, and the other for gas processing equipment being purchased by Iraq’s Ministry of Oil.
At its next meeting the board is expected to begin tackling what has become, according to newly appointed President and Chairman Kimberly A. Reed, a backlog of nearly US$40 billion in transactions that would support more than a quarter-million jobs.
In her speech at the TXF Global Conference in Berlin on June 12, Reed said: “We also expect an influx of applications, now that the board is back. The plan is to work through the applications at a thoughtful and reasonable pace. We expect the board will vote on some of them before the end of the summer.”
Reed did not say the files would be processed in a hurry. She cautioned that “protecting the interests of U.S. taxpayers is still paramount to us. The fact that the bank has a default rate of 0.5 percent shows the prudence of Ex-Im’s staff.”
Schubert added: “It is anticipated that the board will begin moving on to some of the larger transactions in August.” He noted that transactions above US$100 million get referred for oversight and a 30-day comment period.
Among the often-unsung benefits of the bank are the follow-on benefits. Schubert said: “It is not just selling a billion-dollar project; it is the supplies, spare parts, the operations and maintenance, and all the other sales. If you win the initial project, you also have ability to win 10 to 20 years of additional business.”
Damage Done
During the years the Ex-Im Bank operated without teeth, tangible and intangible damage was bound to accumulate.
Ex-Im Bank’s 2018 Competitiveness Report, released in June 2019, concluded that the export credit agencies of nations around the globe didn’t sit still while the U.S. Ex-Im Bank was stymied. They moved ahead, picking up ground that the U.S. may not get back.
The U.S. Ex-Im Bank reported on fundamental changes in officially supported export finance over the last decade. “During this time frame, export-led growth has become a key priority of many governments. Export credits agencies, or ECAs, are being viewed by governments as tools to achieve national strategic goals and to close the financing gap between the creditworthiness of an export-finance transaction and the commercial bankability. Today, there are 112 ECAs worldwide, up from 95 in 2017.”
In the report, Chairman Reed is quoted: “[It] illustrates the breadth and depth of the involvement of governments, especially China, in promoting and financing the exports from their countries. The performance of China’s export credit system has triggered the governments of other countries to respond defensively by changing their policies and programs or risk their exporters losing access to large swaths of global markets.”
Key findings of the report include:
• Governments today are not only supporting their exports through ECAs, but are increasingly focused on expanding future exports through a whole-of-government approach that involves other types of support.
• Other nations are doing more to support their exports, with more providers, more recipients of official support, more aggressive terms, more types of financing products and programs, and more proactive strategies.
• China’s trade support has trended upward for 10 years, reaching roughly US$39 billion in 2018. The next-highest levels were recorded by Italy (US$12.4 billion), Germany (US$12 billion), and Korea (US$10.6 billion). U.S. support was US$300 million.
John Schuster, founder and president of JLS Capital Strategies LLC, and former vice president and head of the structured finance division of U.S. Ex-Im Bank, spoke to Todd Alexander of Norton Rose Fulbright on project finance. He described the damage done by the prolonged inaction of the Ex-Im Bank. In addition to the loss of profit, which would have accrued to the American people, there was tangible job loss as U.S. manufacturers and others were cut out of supply chains. Less tangible damage revolves around Ex-Im Bank’s ability to pick up the pieces after losing key personnel and market trust. “The bank does not have the personnel it used to, so expertise will be stretched,” Schuster said.
And then, of course, the risk of future mischief persists.
September Reauthorization
Ex-Im Bank is reauthorized every four years, and it is set to expire Sept. 30, 2019. This time around, “there is no question about the rechartering passing,” Schubert said.
Addressing the issue at June’s TXF Global Conference, Reed said: “I look forward to engaging with both the House and Senate on reauthorizing the bank – and in making the bank even better by implementing positive reforms that increase transparency and effectiveness.”
“We know how important it is for this next reauthorization to provide private industry certainty in the marketplace – and the timeline needed for planning the allocation of capital,” Reed said.
Bipartisan support for a reauthorization bill and an upbeat and positive new Ex-Im leadership will secure the reauthorization, Schubert said, but it may not happen before the end of September.
If Congress does not reauthorize the bank by then, Ex-Im Bank will service its existing obligations, but will, temporarily, be unable to approve new loans, guarantees or insurance commitments.
When authorization lapsed in the latter half of 2015, reauthorization was added to the Fixing America’s Surface Transportation Act.
There have been major changes in global ECA finance since the last lapse of Ex-Im Bank’s authorization, and while U.S. ability to win business overseas is vital, the new game changer is that national security is being bundled into export credit. A U.S. presence in strategic places is important, and Ex-Im finances a part of that presence, just as the ECAs of other countries do.
At Ex-Im Bank’s 2019 annual conference in March, National Economic Council Director Larry Kudlow said that Ex-Im is needed in the current trade environment, particularly with respect to China, in order for the U.S. to compete and succeed internationally.
“Ex-Im Bank can be working with us and helping American interests around the world because the geopolitics have gotten much tougher, and the competition has gotten much tougher. And, yes, a lot of this, too, revolves around China,” Kudlow said.
“This is an export credit lending matter that we believe will be very helpful in the new tougher global competition. You are a financial tool and a national security weapon.”
If only for that reason, it is unlikely that Congress will dawdle too long on reauthorization.
Based in the U.S., Lori Musser is a veteran shipping industry writer.
Image credit: Shutterstock
