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211-032 The Export-Import Bank of the United States

2

History of Ex-Im Bank

President Franklin D. Roosevelt established the Export-Import Bank of the United States in 1934 with the intention of combating the widespread collapse in trade and trade credit that had accompanied and exacerbated the Great Depression.

Ten years later, in the aftermath of World War II, President Harry Truman wanted to utilize the Ex-Im Bank in the reconstruction of war-torn Europe. To do so, however, the Bank needed enhanced standing. In 1945 he proposed and then signed the Export-Import Bank Act of 1945, which made Ex-Im an independent government agency and substantially increased its ability to obtain capital from the U.S. Treasury. Following the aftermath of the war, Ex-Im remained instrumental in U.S. foreign policy, particularly in regards to the Cold War.

Ex-Im Bank’s financial position was a subject of regular scrutiny, especially during and after the 1970s. Ex-Im lent to foreign buyers of U.S. exports at fixed rates, and when interest rates increased drastically during the 1970s Ex-Im kept its own lending rates low, meaning not only that Ex-Im was lending at below-market rates but also that its borrowing costs from the Treasury were higher than its lending rates.3 Furthermore, until 1986, Ex-Im charged a flat 2 percent exposure fee that did not adequately account for transactional risk for each loan it authorized. These practices eventually had adverse financial consequences. The debt crisis among Less-Developed Countries (LDCs) in the 1980s resulted in a substantial deterioration of Ex-Im’s portfolio; the share of non-performing loans reached 20 percent.4 Between 1982 and 1989, Ex-Im lost an average of $585 million a year.5

Ex-Im tightened its lending standards in the wake of the 1980s debt crisis, but it continued to work to ensure the competitiveness of U.S. exports. Beginning in the 1970s, Ex-Im faced increased competition from ECAs in other countries in the Organization for Economic Cooperation and Development (OECD), and in the 1980s it started to work with them to minimize distortions ECA activity caused. Ex-Im increased its activity to fill financing gaps during the Mexican crisis of 1994, as well as the Russian and Asian financial crises of 1997-1998.

As of FY2009, Ex-Im Bank’s exposure, or the outstanding principal balance of loans associated with past authorizations, totaled $68 billion and included transactions with 165 countries.

Operations of Ex-Im Bank

Forms of Support

Ex-Im offered several forms of support to address the credit risk of a foreign buyer of a U.S. good. For example, a foreign buyer could apply for a direct loan at a fixed rate from Ex-Im. As an example, Ex-Im extended a $913 million direct loan to finance exports of gas turbine generators from General Electric to three power plants in Saudi Arabia in 2009.

Alternatively, if a foreign buyer of a U.S. good sought a loan from a commercial bank, the bank could apply for a loan guarantee from Ex-Im to cover debt obligations in the event of default and pass the costs through to the buyer. These medium and long-term loan guarantees covered the

3 Becker, William H. and William M. McClenahan, Jr. 2003. “The Market, The State, and the Export-Import Bank of the United States: 1934-2000.” Cambridge University Press, Cambridge, United Kingdom. Pages 152, 173.

4 Ibid., page 235.

5 Ibid., Table 6.3, page 235.

The Export-Import Bank of the United States 211-032

3

commercial and political risk for up to 85 percent of the contract value. In 2009, for instance, Ex-Im guaranteed repayment of a loan from JP Morgan Chase that financed the sale of five Boeing 737-800 aircraft to EgyptAir, Egypt’s national air carrier.

Ex-Im also offered export credit insurance to U.S. exporters, which protected the exporter from the default risk of a foreign buyer. An exporter might seek to utilize export credit insurance if it wanted to sell goods on open account terms, thus generating an account receivable. This insurance also made it easier for an exporter to access bank financing because such financing could be secured by guaranteed receivables.

Ex-Im had not offered loan guarantees or export credit insurance for the first thirty years of its existence, but it started doing so in the 1960s as an attempt to encourage commercial banks to participate in export markets and to reduce the administrative responsibilities it needed to perform. The use of loan guarantees quickly surpassed direct loans, and insurance became very popular. “We’re basically an insurance company,” as put by Ravi Arulanantham.6 Guarantees and insurance comprised 84.8 percent of Ex-Im’s outstanding exposure in FY2009.7

The remainder of Ex-Im’s products primarily addressed the credit risk of U.S. exporters. Ex-Im offered working capital loan guarantees that guaranteed repayment of working capital loans made by commercial banks to exporters. If an exporter needed to purchase materials to complete a product for export, it might request a working capital loan from a bank, and Ex-Im’s guarantee would facilitate the transaction, especially when the borrower was a small exporter that would otherwise have trouble accessing funding.

Under a working capital loan guarantee, Ex-Im guaranteed 90 percent of the outstanding balance of a working capital loan from a bank to an exporter, provided that it was secured by a foreign receivable. The majority of this business went through Ex-Im’s delegated authority lenders across the country that could commit an Ex-Im guarantee to a working capital loan without prior approval by Ex-Im Bank. A technology company based in California, for example, could apply for a working capital guaranteed loan from Silicon Valley Bank, a commercial bank with such delegated authority.

In FY2009, which ended September 30, 2009, Ex-Im Bank extended just over $21 billion in authorizations, which are described in Exhibit 2. Almost all of this support was associated with U.S. dollar denominated loans. Ex-Im characterized transactions according to the goal they aimed to achieve, with the two primary objectives being to fill a financing gap when no private financing was available and to meet competition from foreign ECAs. Exhibit 3 provides information about the extent to which different kinds of transactions accomplished these objectives in calendar years 2007 and 2008.

Ex-Im Bank Customers

Subject to certain limited exceptions (e.g., most types of defense articles), any exporter meeting Ex-Im’s U.S. content rules was eligible to apply for the Bank’s support; according to its mission, “no transaction is too large or too small,” but it was only supposed to authorize transactions with a “reasonable assurance of repayment.” Ex-Im Bank was mandated by Congress to give priority to small business exports, as its charter required that the value of support to small business be no less than 20 percent of all authorizations in a fiscal year. In terms of volume, support to small business had made up over 80 percent of Ex-Im’s transactions in recent years. Ex-Im also reached out to

6 Interview with Ravi Arulanantham; May 18, 2010.

7 Export-Import Bank of the United States 2009 Annual Report, page 13 and 25.


4

women and minority-owned business, having supported $563 million in export sales by such companies in FY2009. Much of the support to small business was short-term in nature and took the form of working capital loan guarantees or export credit insurance.

Medium and long-term support, on the other hand, went principally to larger and more experienced exporters. In a survey of exporters who had used Ex-Im’s medium and long-term programs in 2008, 80 percent of respondents had been exporting for 11 years or more, and none had been exporting for three years or less.8 A majority of Ex-Im long-term support facilitated exports of capital goods. Exhibit 4 provides information on Ex-Im authorizations and exposure by type of export for FY2008 and FY2009. Historically, the majority of foreign borrowers that used Ex-Im financing were either sovereign governments or state-backed firms, though their share had been declining since the 1990s, as illustrated in Exhibit 5.

Pricing of Services

As of 1986, Ex-Im charged fixed interest rates on direct loans that were set at the official Commercial Interest Reference Rate (CIRR) at the time of the transaction. The CIRR, established after many negotiations among OECD countries in the early 1980s, was the official lending rate of Export Credit Agencies. For Ex-Im, it was calculated as the U.S. government’s cost of borrowing plus 100 basis points. Historical 10-year Treasury rates from 2006-2009 are provided in Exhibit 6.

In addition to interest expenses, Ex-Im also charged a one-time upfront exposure fee for loans and medium and long-term guarantees. This exposure fee was adjusted to account for transactional risk. Fees for direct loans and guarantees of importer payment obligations (other than with respect to aircraft, which were subject to a different exposure fee regime) were determined on the basis of several factors, including the risk level of the destination country, the percentage of the value of exports covered, the length of repayment period, and whether the fee itself was financed and/or paid upfront. For each country, a baseline fee was set for sovereign borrowers based on the above measures, and non-sovereign borrowers were then placed in a transaction risk increment ranging from zero to five with fees ranging from 0 to 50 percent higher than the sovereign baseline fee.

For working capital loan guarantees (which were typically less than 1 year) Ex-Im charged an upfront facility fee, which ranged between 0.25 and 1.5 percent of the value of the loan, depending on whether the underwriting was performed by a banking partner or by Ex-Im. For export credit insurance, Ex-Im charged a premium that was based on the tenor of the credit, the type of buyer and country of buyer.

Ex-Im Bank Costs and Budget

To measure the expected cost of its credit programs, David Sena, the Vice President and Treasurer of Ex-Im, and his team followed the Federal Credit Reform Act (FCRA) of 1990, which required that the budget cost of federal credit programs be valued on a net present value basis, excluding administrative costs. Ex-Im calculated what it referred to as the “subsidy” associated with each transaction as the difference between the present value of the expected cash outflows and expected cash inflows at the time credit was extended. Outflows consisted of direct loan disbursements and direct loan interest expenses and estimated claim payments, and inflows included fees as well as direct loan repayments of principal and interest income. A “negative subsidy” reflected a case where the transaction generated a surplus, i.e. expected cash inflows exceeded outflows, while a “positive 8 “Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States: For the Period January 1, 2008 to December 31, 2008” (2008 Competitiveness Report), Export-Import Bank of the United States, June 2009, Figure C5 page 104.


5

subsidy” reflected the opposite. Ex-Im used its own historical data dating back to 1994 to estimate credit losses, and, following the provisions of FCRA, all cash flows were discounted at the interest rate on marketable U.S. Treasury securities of similar maturity.

Each year, Ex-Im was required to estimate the value of expected cash inflows and outflows associated with authorizations for the upcoming year and to hold a reserve equal to the expected outflows. Prior to FY2008, Ex-Im received an appropriation from Congress each year to cover these program costs9, along with administrative costs, for the upcoming fiscal year. If, at the end of the year, receipts ended up exceeding disbursements, the difference was transferred to an account at the U.S. Treasury. Since 1992, fee and interest income had been more than enough to cover the Bank’s program and administrative costs, and from 1992 to 2008 Ex-Im had transferred $15 billion to the Treasury while only receiving $9.8 billion in appropriations.10 In FY2008 Ex-Im became self-sustaining with respect to the federal budget, meaning that it relied on its own fee and interest income to fund program and administrative costs, though these budgets were still subject to Congressional approval.

The value of “subsidies” changed over the life of a transaction as interest rates fluctuated, financial conditions of borrowers changed, and as Ex-Im adjusted its assumptions concerning expected credit losses. Ex-Im was required to hold loss reserves equal to the present value of expected future credit losses. If an annual reassessment indicated that the expected future credit losses would be in excess of current loss reserves, Ex-Im needed to provision the difference. Ex-Im had permanent authority to acquire the funds necessary for such provisions from the U.S. Treasury, meaning that its loans and guarantees were backed by the full faith and credit of the U.S. Government. In 2009, Ex-Im revised the default assumptions on its portfolio to reflect conditions of the financial crisis, and as a result, Ex-Im had to provision an additional $1.3 billion to its loss reserves in FY2009.

Exhibit 7 provides Ex-Im’s net costs of operations, balance sheet, and loss reserves and exposures for FY2008 and FY2009.

Foreign ECAs

Nearly every country had its own export credit agency, but there was substantial variation in the types and levels of support these institutions offered. Exhibit 8 provides a brief description of ECAs in 6 OECD countries, and Exhibit 9 shows aggregate levels of recent activity for a broader sample of ECAs.

International negotiations among ECAs of OECD countries had gone a long way toward harmonizing ECA policies. For example, the OECD Arrangement on Officially Supported Export Credits had succeeded in reducing or eliminating direct subsidies by ECAs. OECD countries had agreed on a set of minimum interest rates at which member ECAs could lend, and they had agreed to a minimum set of exposure fees ECAs could charge for guarantees. The OECD claimed that by the late 1980s roughly 80 percent of the subsidies extended by ECAs in the past had been eliminated.11

One area where negotiations continued, however, was over aircraft financing. Negotiations between Ex-Im and ECAs in Germany, France and the United Kingdom were often contentious

9 Program costs refer to transactions where expected cash inflows are below expected outflows

10 “Report to Congress on Ex-Im Bank’s Budget Estimates Fiscal Year Ending September 30, 2011,” page 7.

11 Becker and McClenehan, page 207.


6

because each of the European ECAs supported financing for Airbus, a European aircraft manufacturer with which Boeing often competed. Exhibit 10 displays the extent to which Boeing and Airbus deliveries were supported by ECAs.

Although OECD ECAs had made progress working in concert, ECAs based in other countries were not subject to many agreements that had been reached, and they were taking on larger roles. In Brazil, India, and China, medium and long-term ECA authorizations alone financed between 2 and 5 percent of exports, whereas in G-7 countries between 0.5 and 2 percent of exports were financed this way.12 China had three separate ECAs, and it was expected that by 2010 the Chinese ECAs would collectively be the largest export credit provider in the world.13

By 2009, many ECAs, even those based in OECD countries, were adopting a commercial, market-oriented approach. The WTO had ruled that all ECAs must operate with the intent to break even in the long-term. Certain ECAs had also begun to operate market windows, which claimed to offer credit on market terms, essentially operating like private lenders, while still receiving government backing.

Response to the Financial Crisis

In response to the crisis, Ex-Im dramatically increased its level of activity. Ex-Im’s $21 billion in authorizations for FY2009 was a 46 percent increase from FY2008 and its largest amount of authorizations ever. Ex-Im stepped up its level of direct lending, which had been close to zero in recent years, to over $3 billion.

However, existing Ex-Im offerings were insufficient to address challenges in many parts of the market for trade finance, so Ex-Im initiated several new programs. To address the liquidity crunch at lending institutions, Ex-Im implemented a loan take-out option. For a fee, this option allowed commercial banks to sell their Ex-Im guaranteed medium and long-term loans to Ex-Im at face value. To be eligible, a bank had to demonstrate that its borrowing costs had increased above a certain threshold. This program allowed banks to reduce their liquidity risks and thus borrowing costs by providing a pre-agreed mechanism for the banks to shrink their balance sheet, if necessary. According to Ex-Im documents, the take-out option allowed commercial banks to reduce their costs of funds by as much as 75 basis points.14

During the crisis, U.S. banks became wary of taking on Korean commercial banks as counterparties in transactions that involved letters of credit. This posed a significant threat to U.S. exports to Korea as many exporters only wanted to ship to Korean customers on secure terms. Ex-Im intervened by providing over $1 billion in guarantees for letters of credit with Korean banks.

Ex-Im also introduced certain new programs that, as described by James Cruse, Ex-Im’s Senior Vice President of Policy & Planning, were intended to “move behind the curtain” and support the activities of suppliers of U.S. exports.15 For example, Ex-Im extended eligibility for its working capital guarantee program to firms that sold inputs to U.S. exporters to ensure that their supply chains continued to function properly, and also enable suppliers to sell their receivables to lenders

12 Casewriters’ calculations based 2009 Competitiveness Report, page 11; Bureau of Economic Analysis; and World Development Indicators, accessed October 2010.

13 2005 Competitiveness Report, page 87.

14 Report to Congress, page 10.

15 Interview with James Cruse, May 18, 2010.


7

with an Ex-Im guarantee. Ex-Im also planned to offer reinsurance for export financing, a product other ECAs like Euler Hermes and COFACE already offered. Reinsurance was purchased by credit insurers and effectively transferred the risk of a covered transaction from the insurer to the reinsurer. These and other programs were intended to fill a market gap and help firms, particularly small businesses, gain access to credit.

Financing the Emirates Aircraft Purchase

Aircraft authorizations were desirable to Ex-Im because they tended to generate fees in excess of the transactions’ expected costs including the applicable provision for expected credit losses. Thus, they tended to be “negative subsidy” deals.16 However, with commercial banks’ balance sheets crippled, the traditional funding source for Ex-Im guaranteed aircraft loans had dried up. Before the onset of the crisis, rates on Ex-Im guaranteed bank loans for aircraft purchases were yielding no more than a couple basis points above LIBOR. By the fourth quarter of 2008, however, some banks were demanding much higher returns and others had become unwilling to consider new loans. In early 2009 Natixis and JP Morgan, two investment banks, each independently estimated that there was a potential funding gap of between $10 billion and $20 billion for aircraft being delivered in 2009.17

Robert Morin and his team worked with bankers at Credit Agricole CIB (formerly known as Calyon), its broker-dealer house Credit Agricole Securities (formerly Calyon Securities), and Goldman Sachs to structure an alternative funding arrangement for a particular opportunity to export aircraft. Credit Agricole and Goldman Sachs had identified the funding gap in late 2008 and worked with Ex-Im to develop plans to fund Ex-Im Bank-guaranteed debt in the capital markets. Credit Agricole had expertise in the structuring and distribution of ECA-backed debt to finance aircraft, and Goldman Sachs had expertise in the structuring and distribution of government-guaranteed debt. Morin believed that the combination of these banks’ knowledge (and that of the banks’ outside counsel, Milbank, Tweed, Hadley & McCloy and Ex-Im Bank’s outside counsel, Vedder Price PC) could be instrumental in the development of a market that was distinct from the hobbled commercial bank market.

The potential financing arrangement involved a note issuance to fund the sale of three Boeing 777 aircraft to Emirates. Emirates was established in 1985 by the then Crown Prince and Deputy Ruler of Dubai as a government-owned corporation with limited liability. It was an international airline of the United Arab Emirates, and it made up the core of the Emirates Group, which also had operations in travel management services, hotel management, and other activities.

Morin and the bankers wanted the financing arrangement to include several key features. A bank would need to temporarily finance the sale of the aircraft until the last plane was delivered, which was expected to take place in late September. Credit Agricole agreed to put up this capital in July and would obtain an Ex-Im guarantee on the loan it made. Rather than have Emirates purchase the aircraft directly, Ex-Im and the bankers wanted Emirates to set up a special purpose company (SPC) that would buy the aircraft, maintain title to them, and lease them to Emirates. This SPC would be called Amal Ltd, and it would be based in the Cayman Islands, a country that offered strong creditor protections and that would impose no significant other costs or additional taxes. Emirates requested that the bank facility be structured as a “back-stop” facility with a pre-agreed interest rate. This ensured the availability of financing for 12 years for these three aircraft, even in the event that Amal was unable to eventually issue notes in the capital market.

16 Interview with Robert Morin, June 30, 2010.

17 “The Year Ahead for Aviation Finance,” AirFinance Journal, January 5, 2009.


8

Once all three aircraft were delivered, Amal would issue notes and use the proceeds to purchase the bank notes from Credit Agricole and amend and restate the bank notes as a capital market instrument (so as to preserve Ex-Im Bank’s original security package and liens and thereby avoid the costs and expenses of re-perfecting the security interests and the risk associated with a new preference period). The proceeds from the notes would pay for approximately 85 percent of the value of the aircraft, and the remainder would be paid by Amal using a non-refundable advance payment of rent by Emirates under the lease. The lease payments by Emirates would support the quarterly payments by Amal to the note holders. Goldman Sachs and Credit Agricole Securities would act as initial purchasers of the notes, evenly splitting the offering and intending to market the notes to other buyers. The proposed arrangement is illustrated in Exhibit 11.

As the logistics began to take form, a remaining issue was the exposure fee Ex-Im would charge for its guarantee. Aircraft transactions were exempt from the main body of the OECD Arrangement on Officially Supported Export Credits which mandated that exposure fees be risk-based and prescribed the floor on non-aircraft fees based on the type of obligor, the country risk, and other factors. Fees for aircraft transactions, on the other hand, were required to be at least 3 percent and increased if the ECA deemed it necessary. After reviewing the details of the transaction and estimating Ex-Im Bank’s expected losses under the guarantee, Morin and the Transportation Division team concluded an exposure fee of about 3 percent was adequate to cover the credit risk of Emirates and the aircraft-secured structure of the transaction.

The proposed issuance would be for $413,735,523 in secured notes due in 2021, sold at face value with a coupon rate of 3.465% and making quarterly payments of principal and interest. Because the exposure fee would be financed, about $400 million of the issuance would go to financing the aircraft purchase and the remainder would finance the exposure fee which would be paid upfront. In order to determine the expected cost of the guarantees it issued, Ex-Im made use of its own data to construct assumptions of the probability of default and the loss given default. These two percentages were multiplied together to compute a credit loss factor that was applied to each of the required payments, generating estimated default costs for each payment. These costs were then summed, and because historical data indicated that default typically occurred in year four, Ex-Im assumed that this expected loss would occur at that time. Exhibit 12 provides an example of this type of calculation using the schedule of required payments in the proposed issuance and hypothetical assumptions about the probability of default and the loss given default.

This kind of funding arrangement shared many features with enhanced equipment trust certificate (“EETC”) transactions, which were used by many U.S. airline operators to finance purchases of aircraft that they used domestically. Because aircraft used by U.S. airlines were not exported, these transactions were not eligible for an Ex-Im guarantee. Exhibit 13 summarizes EETC issues from 2009. Yields were particularly high for EETCs at this time; prior to the onset of the crisis the implied yield on uninsured EETC issues was 6-7%, or about 150 basis points over U.S. Treasury securities with a similar maturity.

As the Transportation team fleshed out the details of the potential deal, Hochberg’s decision on whether to support it extended beyond his role as President of the Bank: as Chairman of the Board, his vote was one of three filled spots on the Board of Directors that would decide whether or not to let the deal go through.


9

Exhibit 1 Monthly U.S. Exports, January 2006-September 2009 (billions $)

Source: Created by casewriters using data from USATradeOnline, accessed March 2010.

150

170

190

210

230

250

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

bill

ions

$


10

Exhibit 2 Descriptoin of Ex-Im Authorizations, FY2008-FY2009 (millions $, except when indicated)

FY 2009 SUMMARY OF AUTHORIZATIONS

# of

Authorizations Amount

Authorized Estimated Export

Value

Program Budget Used

Program 2009 2008 2009 2008 2009 2008 2009 2008

LOANS

Long-Term Loans 16 2 3,025.5 356.0 3,205.2 501.7 - 0.1

Medium-Term Loans - - - - - - - -

Tied-Aid Incl. Above - 7.8 - Incl. Above - 7.8 -

Total Loans 16 2 3,033.3 356.0 3,205.2 501.7 7.8 0.1

GUARANTEES

Long-Term Guarantees 57 79 9,628.4 8,101.5 9,858.2 9,409.9 - 0.6

Medium-Term Guarantees 89 135 315.3 697.0 360.3 740.0 10.2 12.1

Working Capital Guarantees 473 459 1,531.0 1,380.9 6,487.3 5,035.9 - -

Total Guarantees 619 673 11,474.7 10,179.4 16,705.8 15,185.8 10.2 12.7

EXPORT-CREDIT INSURANCE

Short-Term 2153 1879 6,275.8 3,635.5 6,275.8 3,635.5 3.5 1.0

Long-Term 103 150 237.3 228.0 254.0 274.2 15.5 11.6

Total Insurance 2256 2029 6,513.1 3,863.5 6,529.8 3,909.7 19.0 12.6

GRAND TOTAL 2,891 2,704 21,021.1 14,398.9 26,440.8 19,597.2 37.0 25.4

FY 2009 SMALL-BUSINESS AUTHORIZATIONS Number Amount Program 2009 2008 2009 2008

Export-Credit Insurance 2052 1854 2,699.1 1,647.5 Working Capital Guarantees 427 414 1,232.9 1,075.5 Guarantees and Direct Loans 61 60 428.4 467.2

Grand Total 2540 2328 4,360.7 3,190.2

Source: Ex-Im 2009 Annual Report, accessed June 2010.


11

Exhibit 3 Ex-Im Bank Transactions by Purpose, 2007-2008

No Private Sector Finance

Available Meet Competition

2008 transactions (millions $) (#) (millions $) (#)

Working capital guarantees $1,163 386 $0 0

Short-term insurance $3,982 1,916 $0 0

Medium-term insurance $49 21 $181 112

Guarantees $2,295 58 $7,467 118

Loans $359 2 $294 3

TOTAL $7,848 2,383 $7,942 233

No Private Sector Finance

Available Meet Competition

2007 transactions (millions $) (#) (millions $) (#)

Working capital guarantees $805 336 $0 0

Short-term insurance $3,343 1,963 $0 0

Medium-term insurance $80 65 $172 123

Guarantees $1,993 83 $5,636 123

Loans $0 0 $0 0

TOTAL $6,221 2,447 $5,809 246

Source: Competitiveness Report Appendix B; 2007, 2008, accessed June 2010.

Exhibit 4 Ex-Im exposure, authorizations, and U.S. exports by industry FY2007, FY2009 (millions $)

FY2008 FY2009

Ex-Im

Exposure Ex-Im

Authorizations*

U.S. Exports of goods & services

Ex-Im Exposure

Ex-Im Authorizations*

U.S. Exports of goods & services

Aircraft 27,671 5,430 36,042 33,203.0 9,452 31,855

Oil & Gas Equipment 7,483 1,568 31,435 8,014.7 1,451 31,267 All other 23,319 7,401 1,719,627 26,770.1 10,118 1,595,606Total 58,473 14,398.9 1,787,104 67,987.8 21,021 1,658,728

*For aircraft and oil & gas, authorizations only include long-term loans and guarantees

Source: Authors’ calculations based on Ex-Im Annual Reports 2008, 2009; BEA Table 2a International Transactions; BEA Table 1 US International Transactions, accessed July 2010.


12

Exhibit 5 Share of Public and Private Obligors in Ex-Im Annual Authorizations: FY1999-FY2009 (percent of total)

Source: 2009, 2003, and 1999 Annual Reports, accessed June 2010.

Exhibit 6 Historical 10-year U.S. Treasury Yields: January 2006-October 2009 (percent)

Source: Federal Reserve; accessed August 2010.

20

30

40

50

60

70

FY1999 FY2001 FY2003 FY 2005 FY 2007 FY 2009

Perc

ent

Private ObligatorsPublic Obligators

0

1

2

3

4

5

6

Jan-

06

Mar

-06

May

-06

Jul-

06

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-

07

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-

08

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep-

09

Perc

ent


13

Exhibit 7 Statement of Net Costs, Balance Sheet, and Loss Reserves and Exposures: FY2008, FY2009 (millions $)

STATEMENT OF NET COSTS

Loans Guarantees Insurance Total

FOR THE YEAR ENDED SEPTEMBER 30, 2009

Costs

Interest Expense 256.3 - - 256.3

Claim Expenses - 13.4 5.2 18.6

Provision for Credit Losses 41.3 1176.7 87.4 1.305.4

Broker Commissions - - 4.0 4.0

Total Costs 297.6 1190.1 96.6 1584.3

Earned Revenue

Interest Income (487.5) (119.9) - (607.4)

Fee and Other Income (21.3) (257.6) - (278.9)

Insurance Premia and Other Income - - (26.1) (26.1)

Total Earned Revenue (508.8) (377.5) (26.1) (912.4)

NET EXCESS OF PROGRAM COSTS OVER PROGRAM (REVENUE) (211.2) 812.6 70.5 671.9

Administrative Costs 84.1

Liquidating Account Distribution of Income 46.9

TOTAL NET EXCESS COSTS OVER (REVENUE) 802.9

FOR THE YEAR ENDED SEPTEMBER 30, 2008

Costs

Interest Expense 250.8 - - 250.8

Claim Expenses - 12.9 5.0 17.9

Provision for Credit Losses (159.7) 322.9 1.2 164.4

Broker Commissions - - 5.4 5.4

Total Costs 91.1 335.8 11.6 438.5

Earned Revenue

Interest Income (4200.2) (116.9) - (537.1)

Fee and Other Income (2.7) (252.7) - (255.4)

Insurance Premia and Other Income - - (32.7) (32.7)

Total Earned Revenue (422.9) (369.6) (32.7) (825.2)

NET EXCESS OF PROGRAM COSTS OVER PROGRAM (REVENUE) (331.8) (33.8) (21.1) (386.7)

Administrative Costs 72.5

Liquidating Account Distribution of Income 109.7

TOTAL NET EXCESS COSTS OVER (REVENUE) (204.5)


14

Exhibit 7 (continued) Statement of Net Costs, Balance Sheet, and Loss Reserves and Exposures: FY2008, FY2009 (millions $)

BALANCE SHEET (in millions $) As of 9/30/2009 As of 9/30/2008

ASSETS

Intragovernmental

Fund Balance with the U.S. Treasury 1,792.5 1,744.8

Receivable from the Program Account 1,396.6 664.7

Total Assets - Intragovernmental 3,189.1 2,409.5

Public

Cash 0.5 0.4

Loans Receivable, Net 3,936.3 3,071.2

Receivables from Subrogated Claims, Net 659.5 731.7

Other Assets 7.7 5.4

Total Assets - Public 4,604.0 3,808.7

TOTAL ASSETS 7,793.1 6,218.2

LIABILITIES

Intragovernmental

Borrowings from the U.S. Treasury 3,805.2 2,929.1

Accounts Payable to the U.S. Treasury 928.9 963.3

Payable to the Financing Account 1,396.6 664.7

Total Liabilities - Intragovernmental 6,130.7 4,557.1

Public

Payment Certificates 82.7 104.1

Claims Payable 11.8 11.6

Guaranteed-Loan Liability 2,234.1 1,376.1

Other Liabilities 176.1 102.2

Total Liabilities - Public 2,504.7 1,594.0

TOTAL LIABILITIES 8,635.4 6,151.1

NET POSITION

Capital Stock 1,000.0 1,000.0

Unexpended Appropriations 293.1 363.3

Cumulative Results of Operations (2,135.4) (1,296.2)

TOTAL NET POSITION (842.3) 67.1

TOTAL LIABILITIES AND NET POSITION 7,793.1 6,218.2


15

Exhibit 7 (continued) Statement of Net Costs, Balance Sheet, and Loss Reserves and Exposures: FY2008, FY2009 (millions $)

LOSS RESERVES AND EXPOSURES (in millions US$) FY2009 FY2008

Loss Reserves

Allowance for Loan Losses (Including Undisbursed) 1,371.6 1,199.3

Allowance for Defaults, Guarantees and Insurance 1,751.7 1,416.9

Liability for Guarantees and Insurance (Incl. Undisbursed) 2,327.6 1,464.0

Total Reserves 5,450.9 4,080.2

Total Exposure

Loans 7,910.5 4,546.0

Receivables from Defaulted Guarantees and Insurance 2,410.1 2,145.7

Guarantees and Insurance 57,667.2 51,781.1

Total Exposure 67,987.8 58,472.8

Loss Reserve as Percentage of Total Exposure 8.0% 7.0%

Source: Ex-Im’s 2009 Annual Report.


16

Exhibit 8 Description of Foreign ECAs from Six OECD Countries

Country ECA Description

Canada Export Development Canada (EDC)Provides short-term export credit insurance, medium and long-term

guarantees, and direct loans. Is a government entity that operates on private sector principles, and operates a “market window”

France Compagnie Française d’Assurance

pour le Commerce Extérieur (COFACE)

Private insurance company that provides medium and long-term export credit insurance on behalf of the French government

Germany

Euler Hermes Kreditversicherungs-AG (Hermes)

Consortium of a private sector insurance company and a quasi-public company that provides official export credit insurance on behalf of the

German government

Kreditanstalt für Wiederaufbau (KfW)Financial institution owned by German government that funds German

export credits both through a government-supported window and a “market window”

Italy

Servizi Assicurativi del Commercio Estero (SACE)

Provides official export credit insurance on behalf of the Italian government

SIMEST

Provides interest rate support to commercial banks in order to achieve CIRR. The Ministry of Foreign Trade is the majority shareholder, and private shareholders consist of Italian financial institutions, banks and

business associations

Japan

Nippon Export and Investment Insurance (NEXI)

Offers export credit insurance and operates under the guidance of the Ministry of Economy, Trade and Industry (METI)

Japan Bank for International Cooperation (JBIC)

Government bank that provides direct loans and guarantees, as well as other products

United Kingdom

Export Credit Guarantees Department (ECGD)

Provides export credit guarantees and interest rate support for medium- and long-term official export credit transactions. ECGD also maintains a

“top-up” reinsurance facility with a private insurance company in the event that the private sector is unwilling or unable to provide short-term export

insurance on behalf of a U.K. exporter

Source: 2008 Competitiveness Report, Appendix D.


17

Exhibit 9 Recent Activity of G-7 ECAs, 2005-2008 New Medium- and Long-term Official ECA Volumes (billions $)

2005 2006 2007 2008G-7 countries

Canada 3.3 5.3 2.8 4.6

France 11 9.3 13 11

Germany 12.7 13.3 7.8 10.8

Italy 8.2 10.7 11 10.3

Japan 8.4 6 0.9 1.1

U.K. 3.7 2.6 3.6 2.2

U.S. 9.8 8.6 8.2 11

Total G-7 $57 $56 $47 $51

BICs

Brazil 3.5 7.5 7 NA

China 18.5 29 38 59.6

India 3.5 4 4.4 13.7

Total B,C,I $25.50 $40.50 $49.40 NA

Note: NA = Not Available; years correspond to calendar years, rather than fiscal years

Source: 2009 Competitiveness Report, accessed October 2010.

Exhibit 10 Percentage of Total Large Commercial Jet Aircraft Deliveries Financed by ECAs, 2008

Note: For Airbus, domestic deliveries refer to deliveries in France, Germany and the U.K.

Source: 2008 Competitiveness Report, page 30.

0

100

200

300

400

500

600

Boeing Airbus

Tota

l Del

iver

ies Foreign, ECA

Supported

Foreign, Non-ECA Supported

Domestic Deliveries

30%

57%

13%

17%

46%

37%

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032

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21

Exhibit 13 Aircraft EETC issuances in 2009

Issuer Amount

($millions) Aircraft Coupon Rating

LTV (prospectus

base)Issuance Month

Expected Maturity Purpose

Continental Airlines

390

3 x 737-800s; 4 x 737-700s; 5 x 737-900ERs; 3 x 777-200ERs; 2 x 757-

200s

9.00% Baa2 / A- 51.40% June 2016

Acquire new aircraft, general

corporate purposes

American Airlines

520 16 x 737-800s; 4 x

777-200ERs 10.38% Baa3 / A- 47.50% July 2019

Acquire 16 new 737s, refinance

four 777s

American Airlines

276 9 x 737-800s; 1 x

767-300ER; 2 x 777-200ERs

13.00% B- 65.00% August 2016 Refinance existing

EETC facility

American Airlines

450 4 x 757-200s; 6 x 767-300ERs; 6 x

MD82s; 3 x MD83s 10.50% B2 / B 37.60% October 2012

Refinance $432 million term loan

credit facility

United Airlines

659

10 x A319s; 6 x A320-200s; 5 x 747-400s;

(PAX)7 x 767-300ERs; 3 x 777-

200ERs

10.40% Ba1 / BBB 56.00% October 2016 Refinance existing

EETC facility

Source: AirFinance Journal: “How the EETC Structure has changed” May 1, 2010; various airline company press releases and company documents; accessed August 2010.

Documents

Export Import Bank of US