December 29, 2021

U.S. Export-Import Bank Seeks Public Comments on Proposed Domestic Financing Program

U.S. Manufacturers, Ports and Other Domestic Projects That Facilitate Exports Have Significant Opportunity to Provide Input
Holland & Knight Alert
Kevin L. Turner

Highlights

  • The Export-Import Bank of the United States (EXIM) published a notice seeking public comment on a proposed expansion of its medium- and long-term buyer financing programs to include domestic transactions.
  • The proposed financing program – which would be a significant expansion of EXIM's financing capabilities – would support establishment and expansion of U.S. manufacturing facilities and infrastructure projects that would facilitate U.S. exports.
  • The deadline to submit comments is Jan. 20, 2022.

The Export-Import Bank of the United States (EXIM) on Dec. 23, 2021, published a notice seeking public comment on a proposed expansion of its medium- and long-term buyer financing programs to include domestic transactions. This proposed domestic financing program would support the establishment and expansion of U.S. manufacturing facilities and infrastructure projects that would facilitate U.S. exports. This would be a significant expansion of EXIM's financing capabilities – one that has been requested by U.S. companies for many years. As the U.S. faces significant supply chain issues in critical industries, this proposal (while still requiring an export nexus) offers a significant opportunity for U.S. manufacturers that are not exporting a majority of their production, as well as ports and other domestic infrastructure projects that would help facilitate exports.

Background

Pursuant to Executive Order 14017, America's Supply Chains, in June 2021, the White House released Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth, a report on the 100-day interagency supply chain review. The report recommends that EXIM "develop a proposal for Board consideration regarding whether and how to implement a new Domestic Financing Program to support the establishment and/or expansion of U.S. manufacturing facilities and infrastructure projects in the United States that would support U.S. exports. The proposal would support and facilitate U.S. exports while rebuilding U.S. manufacturing capacity."

Proposal

The EXIM proposal sets forth hypothetical parameters for the new domestic financing facility (described below) that would be different from the existing parameters of its medium- and long-term overseas financing programs. The proposal notes that the standard EXIM terms, conditions and requirements (such as additionality) not discussed should be presumed to apply to domestic transactions.

  • Export Nexus: EXIM's proposal would require a 25 percent to 50 percent export nexus, meaning that 25 percent to 50 percent of a project's production (such as goods produced in a factory) or capacity (such as traffic at a port) would need to be for export. Importantly, according to the proposal, the export connection could be met by reaching back in the supply chain to count indirect exports. "For example, if a company sells 50% of its output to a domestic company, which in turn uses 50% of the supplier's inputs for exports, this transaction would meet the 25% threshold."
  • Pricing: Because this program would not be official export financing, the OECD Arrangement pricing terms and conditions would not apply. EXIM has proposed two pricing approaches that would meet its statutory and WTO pricing obligations:

"(1) Direct Market Proxy: There are several options, including lending on identical terms and conditions (or provide cover so that the buyer faces identical all-in pricing on both covered and uncovered tranches) as part of a syndicate, price using issuer specific credit default swaps (CDS) or price using comparable public bond information.

(2) Implicit Market Benchmark: In cases where there is no direct market benchmark (e.g., no debt of a comparable term exists), EXIM may as a back-up utilize the OECD "Through the Cycle Market Benchmark" pricing methodology. This methodology uses commercial pricing information to generate market reflective pricing for a wide range of tenors and credit ratings."

  • Jobs Supported: EXIM may consider using U.S. jobs supported as a factor in determining the amount of financing for a project. The calculation of jobs supported would include jobs involved in construction of the project and jobs involved in the continuing operation of the project over the life of the EXIM financing.
  • U.S. Flag Shipping: "EXIM may require U.S. flag shipping on major discrete equipment imports specifically sourced for the project with the same exceptions as EXIM's current policy. Items that had been imported with no expectation or foreknowledge they would end up being purchased with EXIM financing would not require U.S. flag shipping."

Public Comment

EXIM is seeking public comments on 1) the usefulness and need for EXIM to extend its medium- and long-term loans and guarantees to domestic projects, and 2) the proposed parameters of the program. Comments are due by Jan. 20, 2022.

For more information or questions specific to your organization, contact the author of this alert.

Kevin Turner is a corporate attorney in Holland & Knight's Washington, D.C., office. He previously served as general counsel of the U.S. International Development Finance Corporation (DFC), the Overseas Private Investment Corporation (OPIC) and EXIM.


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