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The Export-Import Bank of the United States (US Exim) has signed off on a new supply chain finance (SCF) loan guarantee that marks its first support of a domestic liquified natural gas (LNG) exporter.

As part of the deal, US Exim, the country’s official export credit agency (ECA), will provide a 90% guarantee to cover a US$50mn SCF facility from Greensill Capital to Houston-based Freeport LNG Marketing.

Freeport LNG’s chairman and CEO Michael Smith says the deal will provide the company with “essential working capital” and support its global export operations.

The Private Export Funding Corporation (Pefco) brought capital market funds to the deal, with a spokesperson for the ECA telling GTR that Pefco purchased a 100% participation interest from Greensill for the portion of the SCF facility covered by US Exim.

US Exim says that the 25-year renewal of its public-private partnership with Pefco – signed in September – was key to the deal going ahead.

Pefco was established in 1970 – with support from US Exim – to serve as a private sector source of funding for US exports, and counts a number of commercial banks, exporting companies and financial services firms as its shareholders.

Since then, the pair have been closely aligned, with Pefco serving as both a direct lender and a secondary market buyer for loans that are backed by a guarantee or insurance product from US Exim.

In short, to be eligible for Pefco financing, loans must be protected against non-payment by the ECA.

US Exim’s spokesperson notes that Pefco’s involvement in this SCF transaction would not have been possible had the pair not renewed their partnership in September last year and approved a new “funder guarantee structure” for supply chain transactions.

The funder guarantee structure, also referred to as an “enhanced guarantee”, is a range of additional protections offered by US Exim to Pefco against non-payment.

US Exim’s chairman and president Kimberly Reed says the transaction’s use of an SCF structure with a funder guarantee is “groundbreaking”, adding that it’s an “important new tool in our nation’s trade toolbox”.

US Exim has not been particularly active in SCF in the past decade, with the bank admitting last year that its SCF guarantee programme had been “seldom used” since its launch in 2010, with banks and lenders having had more private sector options with less “restrictive terms”.

But in the wake of Covid-19, the bank tweaked the programme to make it more accessible, and this latest transaction sees US Exim expand the SCF programme even further.

Reed adds that the deal is the first time US Exim has provided financing for a US LNG exporter, a sector the bank has “prioritised” since she took on the role of chairman.

In an example of its support of the sector elsewhere in the world, in 2019, US Exim announced a direct loan of nearly US$5bn for the construction of a major LNG project in Mozambique, which helped secure contracts for dozens of American suppliers.

This latest SCF transaction is estimated to support 200 American jobs, principally in Texas, as well as through supplier networks in Arkansas, Louisiana, Mississippi and Oklahoma.

 

Pefco renewal

Following a public consultation of its partnership with Pefco, US Exim announced that it would renew its relationship with the private entity in September.

As part of the renewal, the ECA also announced a raft of other reform measures, including stricter oversight measures of Pefco’s activities by US Exim, and a lowering of Pefco’s dividend cap from 50% to 35% of earnings.

With US Exim and Pefco’s previous 25-year deal set to expire at the end of the year, calls had been growing for US Exim to strike a new agreement.

The Bankers Association for Finance and Trade (Baft), for instance, released a statement in August calling on US Exim to renew its partnership with Pefco.    

Pointing to the benefits of a continued alliance, Baft said that Pefco is a successful public-private partnership that decreases US Exim’s reliance on taxpayer-provided funding.

Meanwhile, it said that Pefco’s inability to originate loans means it doesn’t compete with the commercial sector. “Pefco provides attractive and competitive… fixed and floating US$ funding alternatives that complement banks’ suite of funding solutions and is a valuable component of the broader industry supporting US exporters,” Baft added.

Baft noted that increasing global competition means that the partnership between US Exim and Pefco has taken on “greater significance”, and would help US exporters beat off competition from foreign firms.