Global California Conference

1. Global California Conference EXPORT CREDIT INSURANCE A TRADE FINANCE TOOL FOR EXPORTING DURING THE ECONOMIC DOWNTURN PRESENTED APRIL 2009 BY GARY MENDELL MERIDIAN FINANCE GROUP

2. Amidst the challenges in the world’s present economic situation, there are also opportunities for growth. The global financial crisis is not affecting every sector of the real economy. Many companies will continue to grow and in many cases their growth will come from export sales. While total export volumes may fall short of earlier projections, worldwide market demand for goods and services will continue to engender a considerable amount of international trade, and even expansion in some sectors. Exporting in the Economic Downturn

3. The U.S. economy is projected to continue declining for some time before it begins to recover, but with just five percent of the world’s population and less than one-quarter of global GDP, the U.S. is not the only country with purchasing power. While all countries are linked to some degree by economic interdependence, different cultural, political, and market forces will lead Europe, Asia, Latin America, and other regions each on their own trajectory. Purchasing Power in Other Countries

4. Facing limited access to capital in their own countries, as well as high interest rates and exchange controls, foreign companies are turning to their international suppliers for working capital in the form of longer payment terms. Exporters who seek to capitalize on the opportunities that will emerge in 2009 and beyond need to consider extending competitive credit terms to their international customers: When customers refuse to pay cash in advance or L/Cs As a competitive tactic vs. other suppliers To support distribution /representation For inventory transfer/supply chain benefits And to keep doors open in strategic markets Customer Demand for Credit

5. U.S. exporters need to extend competitive credit terms to maintain/grow their international sales, but what happens if they don’t get paid? Non-payment risks include: Customer bankruptcy, receivership, or insolvency Protracted slow payment for any number of reasons Cash flow problems or balance sheet issues Over-anticipated demand or local competition General economic conditions (there or in USA) Currency fluctuations Foreign exchange/transfer controls Expropriation and other political risks War, strikes, embargoes, trade sanctions Export Credit Risks

6. Exporters can protect their foreign receivables and be con- fident of getting paid with an export credit insurance policy. Export credit insurance protects exporters against the com- mercial and political risks of not being paid by a foreign customer for virtually any reason. The benefits of this coverage include: Risk protection on foreign receivables Increased international sales Higher exporting profits Enhanced borrowing capacity Export Credit Insurance

7. All of an exporter’s foreign receivables can be insured under a multiple-buyer policy, or single-buyer cover may be available. Sales of all types of products can be covered, regardless of content or where the products are manufactured. Foreign customers don’t need to be huge corporations or government agencies; any buyers can be considered as long as they are creditworthy . . . as determined by financial information, trade references, or in some cases simply the exporter’s own credit experience. Domestic coverage is also available, either alone or in combination with export credit insurance. Eligibility & Spreads of Risk

8. Premium rates are based on the terms extended, the spread of buyer and country risks, and the exporter’s previous credit experience. The cost is low, typically a small fraction of one percent based on sales volume . . . in most cases much less than the fees charged for letters of credit. Rates may be calculated as a function of shipment volume, country and buyer credit limits, or outstanding receivables. Premiums are payable monthly or annually. Whether or not this incremental expense is passed on to foreign customers, the price of the coverage is insignificant compared to the additional business to be won by extending competitive international credit terms. How Much Does Coverage Cost?

9. Some insurance companies perform their own credit investigations and analyses of buyers, individually underwriting each foreign buyer for the exporter. Others entrust, and even rely upon, the experience and expertise of the exporter to make its own credit decisions, either on the basis of the exporter’s own review of the buyer’s credit information or its own ledger experience. Some insurance companies have developed their own databases of foreign companies’ financial information; others depend upon the exporter to provide the information on which their underwriting decisions will be based. Export Credit Decisions

10. Trade supplier credit references Credit agency reports Financial statements Bank references Industry-specific creditor groups Specialized industry resources Personal visits Time in business Local reputation On-line, legal, news-wire info Juxtaposition of all of the above Sources of Credit Information

11. Policies are structured so claims may be filed on the basis of either shipments or losses which occur during the policy term. Some policies allow claims to be filed as soon as a buyer defaults on payment, while others specify a waiting period. Most kinds of coverage provide for an extended period of time during which, if the exporter so chooses, it can try and work with past-due customers before claims must be filed. Exporters’ collection efforts can often be coordinated with the insurance company. Once a claim is paid, receivables from the buyer get assigned to the underwriter. Claims

12. Legal/enforceable documents can reduce non-payment risks and may be critical for effective collections. Bilingual documentation should always be reverse-translated. Cash down-payments, partial deposits, and standby letters of credit can of course obviate default risks, but creditworthy buyers may not be prepared to offer them. Documentary collections, promissory notes, drafts, or bills of exchange may enhance collection efforts. They do not necessarily reduce underlying credit risk. U.S. accounts, post-dated checks, direct remit- tances only as good as buyer performance. Other Ways to Mitigate Risk

13. INCREASES PROFITS: Helps to grow sales by making it more economical for customers to purchase larger quantities; enables negotiation of better pricing from suppliers; facilitates transferring inventory carrying costs to foreign distributors. SUPPORTS MARKET PENETRATION: Allows opening of new target markets which might otherwise be perceived as too risky for extending competitive credit terms. GETS MORE OUT OF DISTRIBUTORS: Enables negotiation of stronger representation by offering competitive terms to distributors; keeps more products in the supply chain, increasing market share and brand recognition. Coverage as a Sales Tool

14. ENHANCES BORROWING CAPACITY: Facilitates the arrangement of favorable financing by making foreign receivables more attractive to banks and other lenders. The exporter can assign policy proceeds to its bank. STRENGTHENS BALANCE SHEETS: Keeps a company’s financial position secure, despite exposure to unforeseen events, concentrations of credit risks, and changing inter- national market conditions. Insuring foreign receivables may also enable reduction of bad debt reserves. Export credit insurance can help facilitate the “true sale” of receivables per FASB 140, as well as supporting asset securitization. Coverage as a Financing Tool

15. TRADE FINANCE Cross-Border Equipment Financing Foreign Buyer Credit Facilities Note Purchase Agreements Custom Financing Structures INSURANCE Export Credit Insurance Political Risk Coverage Domestic Receivables Insurance Policies for Financial Institutions Meridian Finance Group

16. For More Information: • Meridian Finance Group • 1247 7th Street, Suite 200 • Santa Monica, CA 90401 • Tel: 310 260 2130 • Fax: 310 260 2140 • gmendell@meridianfinance.com • www.meridianfinance.com