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					 Export Credit Guarantees of the Federal Republic of Germany
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Hermes Cover Special
                                                               Refinancing

                                                                May 2005
    Export Credit Guarantees of the Federal Republic of Germany



    I. Refinancing of officially                              Banks which finance an export transaction by ex-
    supported export transactions                             tending a buyer credit to the foreign buyer are also
                                                              able to refinance the amounts due under Finance
    The Federal Government provides Federal Export            Credit Cover. What the Federal Government has on
    Credit Guarantees in favour of German exporters for       offer here is a Securitisation Guarantee. It gives a
    export transactions involving the supply of goods         bank which has already received Finance Credit
    and/or the provision of services to a foreign buyer.      Cover from the Federal Government the possibility
    Export Credit Guarantees safeguard the accounts           of obtaining refinancing at favourable terms on the
    receivable due to the German exporter under the           capital market. For more information on securitisa-
    export contract.                                          tion see our Product Information "Securitisation
                                                              Guarantees".
    If the export transaction is financed by a finance
    credit (buyer credit) which is extended to the foreign
    buyer, the financing bank can safeguard the amounts       II. How can the exporter use his
    due under the loan by taking out a Finance Credit         trade receivables for refinancing?
    Guarantee . In such a case, Finance Credit Cover
    will normally be granted in combination with a            In the case of transactions involving capital goods
    Supplier Credit Cover in favour of the exporter.          or engineering transactions involving the establish-
                                                              ment of a plant or installation of equipment with
    If the exporter intends to finance the export trans-      medium and long payment terms, one has to distin-
    action on credit conditions but not by means of a         guish between the financing of the production and
    buyer credit, the exporter itself extends a so-called     delivery phase, i.e., financing before shipment, and
    supplier credit to the foreign buyer stipulating          financing after commissioning. It is standard prac-
    an individual repayment schedule. The Federal             tice that during the production and delivery phase
    Guarantee is then limited to the safeguarding of          the refinancing is accomplished by the exporter's
    the amounts due under the export contract. If the         own resources or by means of a capital loan ex-
    export transaction is not to be refinanced by the         tended by the exporter's house bank.
    exporter's own resources, the involvement of out-
    side lenders becomes necessary. For this purpose          If it is the exporter who has to provide for the
    the amounts due under the export contract may             financing of the export transaction, apart from the
    either serve as security for a new loan or be sold        "supplier credit" in the narrower sense with which
    (forfaited) to refinance the supplier credit. The value   the exporter’s house bank refinances the buyer
    of the trade receivables increases if the debt is         credit on terms commensurate with the payment
    officially supported by a Federal Guarantee.              terms granted to the foreign buyer, non-recourse
                                                              financing (forfaiting) is another important option.
                                                              Whereas in the case of the "supplier credit" extended
                                                              to the exporter by his house bank the amounts due
                                                              under the export contract are only assigned to the
                                                              lending bank as security for the loan, in the case of
                                                              non-recourse financing the trade receivables are
                                                              purchased by the bank without recourse to the
                                                              exporter in the event of deficiency in debt repay-
                                                              ment. An export credit guarantee will then mitigate
                                                              the risk of a loss of the amounts owing under the
                                                              export contract and thereby increase the value of
                                                              the debt with regard to its recoverability.




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Open and silent assignment                                   Approval by the Federal
of the debt                                                  Government for the assignment
                                                             of the Guaranteed Amount and
Both forms of refinancing require the transfer (as-          contingent claims under the
signment) of the amounts receivable to the bank.             Export Credit Guarantee
An assignment can be accomplished either in an
open or silent form:                                         The assignment of the Guaranteed Amount as well
                                                             as the assignment of the claims under the Export
In the case of an open assignment, the foreign               Credit Guarantee does affect the privity of contract
debtor is notified that the right to payment of the          between the Federal Government and the exporter.
claim has been transferred to the bank and that the          Therefore, the General Conditions for Export Credit
bank, as a consequence, is henceforth entitled to            Guarantees provide for special stipulations which
collect all debts owing under the export contract.           distinguish between the assignment of the Guaran-
                                                             teed Amount and the assignment of the claims
In the case of a silent assignment, the assignment           under the policy:
of the debt is not notified to the foreign debtor and
the exporter remains entitled to collect all outstand-       If the exporter assigns the Guaranteed Amount for
ing debt under the export contract. Whereas in the           purposes other than security or collection arrange-
case of forfaiting both open and silent assignment           ments without prior approval by the Federal Govern-
can be applied, the assignment of claims as secur-           ment, the Export Credit Guarantee automatically
ity for a loan is carried out only in the form of a silent   expires. If, in contrast, the claims arising under
assignment.                                                  the Export Credit Guarantee are assigned without
                                                             approval by the Federal Government, the privity of
Thus, the following options are available to the             the Export Credit Guarantee remains unaffected.
exporter when using covered trade receivables for            However, in such a case the Federal Government
refinancing purposes:                                        remains entitled to discharge its obligation by
                                                             making a payment to the exporter pursuant to
• Silent assignment of the claim as security for a           § 354a of the German Commercial Code (HGB).
  loan (without notification to the foreign debtor)
• Forfaiting by silent assignment (without notification      As a rule, the Federal Government assumes that the
  to the foreign debtor)                                     assignment always comprises both the Guaranteed
• Forfaiting by open assignment (with notification to        Amount and the contingent claims under the
  the foreign debtor)                                        Guarantee.

                                                             Art. 19 Assignment of the Guaranteed Amount
     Assignment of                                           If the Guaranteeholder completely or partly assigns
      the claim for                     Forfaiting
    security purposes                                        the Guaranteed Amount for purposes other than
                                                             security or collection arrangements, the Export
     Guaranteed Amount             Sale of the Guaranteed
    as security for a loan        Amount without recourse    Credit Guarantee automatically expires unless the
     (silent assignment)                                     Federal Government has given its prior written
                                    Silent         Open      approval for the assignment.
                                 assignment     assignment




                                                                                                                    3
    Export Credit Guarantees of the Federal Republic of Germany



    Art. 20 Assignment of the benefit of the                As a result of the assignment, the right to receive
    Guarantee (Par. 1)                                      indemnification under the cover policy is also trans-
    Assignment of the right to payment of a claim under     ferred to the bank; the cover policy itself, however,
    the Export Credit Guarantee is only admissible with     is not part of the assignment. Hence, the amount of
    prior written consent from the Federal Government.      the indemnification will be ascertained in consulta-
    An assignment made without this approval is never-      tion with the exporter, who is also obliged to pay the
    theless valid pursuant to § 354a of the German          premium for the guarantee.
    Commercial Code (HGB); in this case, however, the
    Federal Government remains entitled to discharge
    its obligation by making a payment to the Guarantee-    Does the assignment require
    holder.                                                 the approval by the Federal
                                                            Government?

    When is the request for approval                        The assignment of the Guaranteed Amount itself is
    by the Federal Government to be                         admissible without any restrictions as the assign-
    made?                                                   ment is done for security purposes only; approval
                                                            by the Federal Government is therefore not re-
    The request for approval by the Federal Govern-         quired. Although the assignment of contingent
    ment for the assignment of the Guaranteed Amount        claims under the Guarantee is also legally valid
    (including the assignment of the benefit of the         without consent from the Federal Government, in
    Guarantee) must, in principle, be filed prior to the    the event of loss the Federal Government would
    assignment and by the exporter himself.                 then remain entitled to make any claims payments
                                                            to the exporter as the original creditor of the debt
                                                            and accept the claims application from the exporter
    III. Assignment of the Guaranteed                       only (§ 354a HGB). Therefore, in the case of an
    Amount as security for a loan                           assignment as security for a loan it is nevertheless
                                                            advisable to get the written consent from the
    For banks and other financing institutions to agree     Federal Government prior to the assignment.
    to refinance an export transaction they often require
    that the exporter safeguards the amount due under
    the export contract by taking out a Federal Export      Conditions for the approval by
    Credit Guarantee and assigns all contingent claims      the Federal Government for the
    under the Guarantee to the bank. In practice, both      assignment of contingent claims
    the Guaranteed Amount and all contingent claims         under the Guarantee
    towards the Federal Government are frequently
    assigned to the bank as a whole.                        The Federal Government's approval for the assign-
                                                            ment of contingent claims under the Export Credit
    Although in relation to third parties the bank holds    Guarantee is subject to the following conditions:
    the right to payment of the trade receivables under
    the export contract, due to an agreement between        • The privity of contract between the exporter and
    the bank and the exporter the bank is only entitled       the Federal Government remains unaffected.
    to the assigned amount if a default occurs, that is,    • The amount of the indemnification will be ascer-
    if the loan extended to the exporter is not repaid        tained only between the exporter and the Federal
    in due time.                                              Government.
                                                            • In the event of loss, the Federal Government is
                                                              entitled to set off any sums due to it from other
                                                              export credit guarantees taken out by the same
                                                              exporter against the indemnification to be paid.
                                                            • The approval for the assignment does not include
                                                              any subsequent assignment.
4
In addition, the following special conditions apply        The Federal Government's
for Wholeturnover Policies and Wholeturnover               approval for forfaiting of the
Policies light:                                            Guaranteed Amount

• The Federal Government gives its general appro-          The forfaiting of the Guaranteed Amount is only
  val for the assignment to a German financing             admissible with prior written consent from the
  institution, i.e., the approval is not restricted to a   Federal Government; otherwise the Export Credit
  particular bank.                                         Guarantee will automatically expire. As a general
• The exporter shall name the assignee not until the       rule, the same conditions for the approval by the
  claims processing has started.                           Federal Government apply for all forfaiting arrange-
• The approval includes any subsequent assign-             ments. The exporter is informed about these con-
  ments to German financing institutions.                  ditions in a letter of approval in which the Federal
                                                           Government also states that it acts on the assump-
                                                           tion that both the trade receivables and the contin-
IV. Forfaiting of the                                      gent claims under the Guarantee are assigned to
Guaranteed Amount                                          the forfaiter:

Forfaiting is the purchase of an exporter's trade
receivables by banks or forfaiting houses without                                      Foreign debtor
recourse to the exporter. The sale of the trade
                                                                            Trade-
receivables, which can be done either with or                        receivables
without notification to the foreign debtor, is also
accomplished by way of assignment of the trade
receivables. The purchasing bank (assignee) there-          Exporter                 Assignment             Bank
                                                            Seller                                          Assignee
by takes the exporter's position as creditor. As a
rule, the assignee will pay the forfaiting proceeds          Contingent claims
                                                               under the Export
to the exporter after presentation of the required              Credit Guarantee
documents as stipulated in the forfaiting contract.
By this means the exporter is able to immediately                                      Federal Government
increase his cash position and relieve his balance
sheet.

Officially guaranteed debt – within the scope of           The most relevant basic conditions for the Federal
single or multiple transaction policies – is also          Government's approval are:
eligible for forfaiting without having to cancel the
policy; the privity of the Export Credit Guarantee         • As a rule, the complete amounts receivable must
will remain unaffected. If a Federal Guarantee has           be assigned to the assignee; only in exceptional
been taken out, it may facilitate the refinancing of         cases is a partial assignment possible.
the export credit by means of forfaiting or render it      • The approval does not include any subsequent
possible at all in the first place: The banks are more       assignment by the assignee.
willing to purchase trade receivables if the amounts       • The assignee is required to notify the Federal
due under the export contract are protected against          Government of the effected assignment.
non-payment by an Export Credit Guarantee, in
particular with regard to transactions with high-risk
markets.




                                                                                                                       5
    Export Credit Guarantees of the Federal Republic of Germany



    What type of financing institutions                       The approval by the Federal Government for forfait-
    does the Federal Government                               ing by open assignment is subject to the following
    accept as assignee?                                       requirements being met:

    The Federal Government                                    • The foreign buyer must give its approval for the
                                                                assignment.
    • generally accepts financing institutions domiciled      • The exporter remains the contractual partner of
      in Germany or the EU, Australia, Iceland, Japan,          the Federal Government; however, the assignee
      Canada, Liechtenstein, Norway, Switzerland and            becomes a contracting partner with equal rights
      the United States;                                        under the Export Credit Guarantee.
    • accepts other foreign financial institutions and        • The amount of the indemnification will be ascer-
      German or foreign non-banking institutions, in            tained between the Federal Government and the
      particular forfaiting and factoring houses, after a       assignee.
      case-by-case examination.                               • The Federal Government is entitled to set off any
                                                                sums due from the exporter (e.g. the premium
    Apart from these basic conditions there are special         payable for the guarantee) against the indem-
    requirements to be met depending on whether the             nification to be paid to the assignee, if these
    forfaiting is carried out by open or silent assignment.     sums are related to the respective Export Credit
                                                                Guarantee.
                                                              • The assignee is held responsible for all statements
    What special conditions apply                               made by the exporter prior to the receipt of the
    for the Federal Government's                                notice of assignment.
    approval for forfaiting of the claims                     • To set off payments made by the foreign buyer
    by open assignment?                                         against a possible indemnification, the contrac-
                                                                tual relation between assignee and foreign debtor
    In the case of forfaiting by open assignment, the           is applicable.
    financing institution purchases the trade receivables
    (or receivables secured by bills of exchange or letters
    of credit) and the exporter, as a rule, receives pay-     What special conditions apply
    ment of the forfaiting proceeds against presentation      for the Federal Government's
    of the documentation to the assignee as agreed in         approval for forfaiting of the claims
    the forfaiting agreement. The foreign buyer has given     by silent assignment?
    its prior approval for the assignment to ensure that
    the validity of the assignment cannot be contested        The approval by the Federal Government for forfait-
    by him.                                                   ing by silent assignment is subject to the following
                                                              requirements being met:

                                                              • The assignment must not be notified without prior
                                                                consent from the Federal Government.
                                                              • The exporter remains the contractual partner
                                                                of the Federal Government. The exporter must
                                                                ensure that he remains able to fulfil the obligations
                                                                under the Guarantee towards the Federal Gov-
                                                                ernment in fact and in law.




6
• The amount of the indemnification is ascertained       What special conditions apply
  between the Federal Government and the exporter;       for forfaiting by silent or open
  payment of the calculated amount of indemnifica-       assignment under Wholeturnover
  tion is made to the assignee.                          Policies and Wholeturnover
• The Federal Government is entitled to set off any      Policies light?
  sums due from the exporter (e.g. the premium
  payable for the guarantee) against the indem-          • As a rule, the Federal Government's approval for
  nification to be paid to the assignee, if these           assignment is restricted to trade receivables due
  sums are related to the respective Export Credit          under a specific credit limit, i.e., to the exporter's
  Guarantee.                                                whole turnover with one specific foreign buyer.
• All risks which may arise from the silent assign-      • In the case of forfaiting by silent assignment, the
  ment are excluded from cover.                             Federal Government may give its approval for the
• The assignee is held responsible for all statements       complete assignment of all trade receivables
  made by the exporter before and after the assign-         due from every single transaction included
  ment.                                                     under a Wholeturnover Policy or Wholeturnover
• To set off payments made by the foreign buyer             Policy light (comprehensive approval).
  against a possible indemnification, the contrac-       • As the monthly turnover report submitted to the
  tual relation between the exporter and the foreign        Federal Government under Wholeturnover Poli-
  debtor is applicable.                                     cies and Wholeturnover Policies light is broken
                                                            down only by country, the Federal Government
                                                            has no notice of the individual amounts receivable
Is it possible to change the form                           due from each foreign debtor. Therefore, other
of forfaiting from silent to open                           than with single transaction policies, the exporter
assignment?                                                 is required to notify the Federal Government
                                                            of each assigned debt. The name of the foreign
In principle, the Federal Government assumes that           debtor, date of invoice, invoice number, as well
once a decision has been made with regard to the            as amount and due date of the debt must be
form of forfaiting to be applied, this decision will        specified in the notice of assignment.
prevail. If, in individual cases, a change from silent
to open forfaiting is deemed necessary, the condi-                                       Gertrud Jacobshagen
tions for the Federal Government's approval for                                                Dr. Ingo Junker
an open assignment apply, which means that now
the foreign buyer's approval for the assignment is
required. Only in exceptional cases is the Federal
Government willing to give its consent to a simple
disclosure of the assignment, i.e., the Federal
Government waives the requirement that the foreign
buyer must give its approval for the assignment.




                                                                                                                     7
                                               Information on the Export Guarantee Scheme
                                               of the Federal Republic of Germany is available on the Internet at:
                                               www.agaportal.de




Euler Hermes Kreditversicherungs-AG
                   Friedensallee 254
                    22763 Hamburg
                          GERMANY
                           Visiting address:
                              Gasstraße 27
       Phone +49 (0) 40/88 34-91 92
           Fax +49 (0) 40/88 34-91 75
E-Mail: info@exportkreditgarantien.de
                   www.agaportal.de
                           SMEs will receive
                        special advice under
                      the telephone number
                     +49 (0) 40/88 34-90 08
                          Branch Offices:
               Berlin, Bielefeld, Bremen,
         Dortmund, Dresden, Düsseldorf,
           Frankfurt, Freiburg, Hamburg,
              Hanover, Cologne, Leipzig,
         Mannheim, Munich, Nuremberg,
                  Saarbrücken, Stuttgart


09 1606 1205 engl.

				
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