USDA Foreign Agricultural Service GSM-102 Credit Guarantee Program Office of Trade Programs GSM-102 Credit Guarantee Program 20 March 2009 1

USE GSM-102 TO FACILITATE YOUR NEXT TRANSACTION Promote international commerce Encourage the extension of financing Meet competition’s selling terms Risk mitigation Use Positive gestures. Avoid negative body language

GSM-102 Does not provide financing, but guarantees payments due from foreign banks under Letters of Credit to U.S. banks or exporters.

GSM-102 Up to 98% guarantee on principal Interest variable coverage Credit terms up to 3 years Freight is generally covered Uses a Letter of Credit Avoid too much text. Highlight key points with bullets Limit bullets to no more than 7 points per slide Use grpahics sparingly and as a method of association

GSM-102 COMMODITIES 100% produced in USA Food, Feed or Fiber CCC “basket” of commodities High-Value products (90% U.S. Content) Grows in ground or lives in water then typically elgible. Pet food Wood chips

GSM-102 Eligible Commodities Consumer Ready Intermediate fresh fruit, vegetables, meats, condiments, wine and beer, meats, frozen dinners, etc. Animal feed Cattle Hides Flour Soybean Meal Sweeteners Bulk Also: Seafood – Forest Products – Aquaculture - Fibers

GSM-102 PARTICIPANTS U.S. Exporter Importer Approved U.S. Bank Approved Foreign Bank 7

WHY SHOULD YOU USE THE GSM-102 PROGRAM? Since 98% of the loan and part of the interest is guaranteed, U.S Banks can offer attractive credit terms to eligible foreign banks. 8

BENEFITS TO IMPORTERS Increased buying capacity due to bank access to trade credit. Possible access to credit from local bank. With the working capital obtained through the GSM-102, issuing banks may be able to provide attractive terms to the importer May encourage U.S. exporters’ interest in the market because of payment assurance

BENEFITS TO FOREIGN BANKS Access to trade finance with U.S. banks Increased credit lines from U.S. banks Ability to borrow longer term Lower funding costs (interest rates and fees) Ability to support and finance customers

How It Works U.S. Exporter qualifies for GSM on-line (two days approximate) U.S. exporter applies to CCC (pays a fee) for guarantee The buyer and seller negotiate a firm sales contract Importer approaches a CCC-approved bank in destination country/region and goes through the bank qualification process for credit if not already If importer qualifies, the bank in destination country/region opens a letter of credit under the terms of GSM-102 U.S. exporter (normally) assigns GSM-102 guarantee to a U.S. Bank

Deal flow chart (GSM) CCC Importer Exporter Importing bank U.S. Bank payment guarantee Guarantee fee ship goods Importer Exporter contract present docs sight 90 days LC application Participants of the program include U.S. exporters, importers located in eligible countries overseas; financial institutions in the United States; and approved foreign banks in eligible countries. Major difference between normal commercial transaction and GSM transaction is longer payment terms and lower risk. Also, the U.S. exporter can get paid at site by the U.S. bank after presenting proof of both export and payment of GSM fee. USG involvement: Sales registration/fee payment, otherwise, given that this is a commercial program, the USG only becomes involved if importing bank defaults on payment to U.S. bank. USG is not involved if importer defaults on payment to importing bank. If there is a default the U.S. bank must file Notice of default within 10 days, and file a claim within six months. Last fiscal year a claim was filed was FY 2004. Importing bank letter of credit U.S. Bank three years annual payments

GSM-102 Registrations in U.S. Dollars by Region $ Millions $1.44B in 2007 $3.11B in 2008 *$2.8B in 2009 As of 6 March 09 Dollar value of program in total for major bulk commodities is up 190% dollar value over FY07 13

GSM-102 Top Commodities in Dollars by Registration Value $ Millions Dollar value of program in total for major bulk commodities is up 190% dollar value over FY07 $2.8B As of 23 March 09 14

Announced $3.5 Billion in Credit Guarantees For FY 2009! 3.5 15

GUARANTEE FEE One-time fee. Included in price 26 GUARANTEE FEE One-time fee. Included in price Financed as a part of the GSM credit Cost of guarantee fee outweighed by lower-cost, longer- term financing package. Cost of confirmation of L/C lower.

Example Sales Transaction Importer wishes to buy U.S. feed grains Importer approaches U.S. embassy for list of interested U.S. exporters Importer checks USDA website for terms of the GSM-102 program in a press release Importer and exporter enter into a firm sales contract for feed grains

Example Sales Transaction Importer asks approved foreign bank to open an L/C in favor of the U.S. exporter under terms of the GSM-102 program Foreign bank issues the L/C and advises the L/C through a CCC approved U.S. Bank that it has a U.S. Dollar credit facility Exporter registers the sale with CCC and pays fee CCC issues U.S. exporter a GSM-102 payment guarantee U.S. exporter assigns the payment guarantee to a U.S. bank U.S. exporter ships goods to importer U.S. exporter presents shipping documents to the U.S. bank, including evidence of export report

Example Sales Transaction U.S. bank pays U.S. exporter for the port value of the shipping documents U.S. bank extends GSM-102 Payment Guarantee financing terms to the foreign bank Foreign bank determines terms to extend to importer

Deal flow chart (GSM) CCC Importer Exporter Importing bank U.S. Bank payment guarantee Guarantee fee ship goods Importer Exporter contract present docs sight 90 days LC application Participants of the program include U.S. exporters, importers located in eligible countries overseas; financial institutions in the United States; and approved foreign banks in eligible countries. Major difference between normal commercial transaction and GSM transaction is longer payment terms and lower risk. Also, the U.S. exporter can get paid at site by the U.S. bank after presenting proof of both export and payment of GSM fee. USG involvement: Sales registration/fee payment, otherwise, given that this is a commercial program, the USG only becomes involved if importing bank defaults on payment to U.S. bank. USG is not involved if importer defaults on payment to importing bank. If there is a default the U.S. bank must file Notice of default within 10 days, and file a claim within six months. Last fiscal year a claim was filed was FY 2004. Importing bank letter of credit U.S. Bank three years annual payments

GSM-102 Regional Analysts EURASIA GSM Marketing Specialist Chris Williams 202-720-7241 GSM Bank Specialist Hal Taylor 202-690-1267 FAS Announcements of GSM-102 allocation are posted at: http://www.fas.usda.gov/excredits/exp-cred-guar.asp Export credit guarantee program information, such as risk-based fee schedules and country ratings, and commodities eligible: http://www.fas.usda.gov/excredits/ecgp.asp

CREDIT PROGRAMS DIVISION KEY CONTACTS Registration & Operations (Application process) John Doster Branch Chief 202-720-3277 Risk & Asset Management (Banking information) Teri Ryan Branch Chief 202-720-0663 Planning & Analysis (Business Development) Lorie Jacobs Branch Chief 202-720-2074 22