April 15, 2022

Export-Import Bank Approves "Make More in America" Domestic Financing Program

Holland & Knight Alert
Kevin L. Turner | Taite R. McDonald

Highlights

  • The board of directors of the Export-Import Bank of the United States (EXIM) approved the "Make More in America Initiative," an expansion of its medium- and long-term buyer financing programs to include domestic transactions.
  • The financing program – which is a significant expansion of EXIM's financing capabilities – would support the establishment and expansion of U.S. manufacturing facilities and infrastructure projects that would facilitate U.S. exports.
  • Financing priority will be given to environmentally beneficial projects, small businesses and transformational export area transactions, including renewable energy, energy storage, semiconductors, biotech and biomedical products.
  • EXIM is taking applications now for financing under the new program, although longer processing timelines and some growing pains are expected as the program gets up and running.

In a move to strengthen U.S. supply chain resiliency, the board of directors of the Export-Import Bank of the United States (EXIM) unanimously approved a new domestic financing program, "Make More in America Initiative," on April 14, 2022. The program will support the establishment and expansion of U.S. manufacturing facilities and infrastructure projects that would facilitate U.S. exports. This is a significant expansion of EXIM's financing capabilities – one that has been requested by U.S. companies for many years and most recently by the White House. As the U.S. faces urgent supply chain issues in critical industries, the program offers a new funding option for U.S. manufacturers in critical areas such as renewable energy, energy storage, semiconductors and wireless communications equipment, as well as ports and other domestic infrastructure projects that would help facilitate exports.

In announcing the new program, EXIM Chair Reta Jo Lewis stated:

"The Make More in America Initiative will create new financing opportunities that spur manufacturing in the United States, support American jobs and boost America's ability to compete with countries like China. The global pandemic and other recent events have exposed supply chain gaps in critical sectors like advanced manufacturing and renewable energy. EXIM's Make More in America Initiative will be a key tool in tackling these issues, and it will ultimately help America manufacture more and export more."

Interested companies may start applying for financing under the new program immediately. EXIM will use existing application forms with supplemental information required. Longer processing timelines and some growing pains are expected as the program gets up and running.

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 recommended 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." On Dec. 23, 2021, EXIM published a notice seeking public comment on a draft domestic financing proposal.

Key Terms of the Domestic Financing Program

The standard EXIM terms, conditions and requirements, such as reasonable assurance of repayment, additionality (that EXIM's financing is not competing with private sector financing), due diligence and underwriting, will apply to domestic projects financed under the new program. Key terms of the new program that would be different from the existing terms of EXIM's medium- and long-term overseas financing programs are detailed below.

  • General Eligibility: The domestic financing program will be open to all sectors, with priority given to environmentally beneficial projects, small businesses and transformational export area transactions, including renewable energy, energy storage, semiconductors, biotech and biomedical products.
  • Export Nexus: All transactions under the domestic financing program must meet an export nexus threshold – a percentage of a project's production (such as goods produced in a factory) or capacity (such as traffic at a port) that would need to be for export.
    • For small businesses (including minority- and women-owned businesses), transformational export areas and climate-related transactions, the required nexus is 15 percent.
    • For projects in other sectors, the required nexus is 25 percent.
    • The export nexus may be met by reaching back in the supply chain to count indirect exports. For example, if a company sells 50 percent of its output to a domestic company, which in turn uses 50 percent of the supplier's inputs for exports, this transaction would meet the 25 percent threshold.
  • Jobs Supported: Instead of the traditional U.S. content requirement, EXIM will use the number of jobs supported by a project to determine the amount of eligible financing, with the amount based on the number of U.S. jobs supported during construction and over the life of EXIM's financing. Each job-year (e.g., one job over five years is five job-years) allows for up to $189,242 in financing.
  • U.S. Flag Shipping: EXIM will require use of U.S. flagged shipping for any EXIM-supported imports for a project.
  • Limit on EXIM Support: EXIM will support up to 80 percent of a project's financing requirements.
  • Pricing: Because this program would not be official export financing, the Organization for Economic Cooperation and Development (OECD) Arrangement pricing terms and conditions would not apply. EXIM has proposed two pricing approaches that would meet its statutory and World Trade Organization (WTO) pricing obligations:
    • 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.
    • 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.
  • Transparency Measures:
    • All domestic financing transactions, regardless of size, as well as any modifications to the program itself, will require approval from EXIM's board of directors.
    • EXIM will provide advance notification to Congress of any domestic finance transactions above $50 million. 
    • EXIM will provide annual reporting on aggregate export and jobs performance.
    • Finance agreements will contain contractual recourse measures should projects fail to meet export nexus and/or jobs standards. 

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


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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