Securitisation of export credit guaranteed loans looks set to take hold in Europe, but recent changes made by Eximbank to counter the growing popularity of the technique in the US throws up new hurdles to financiers.
European export credit agencies have watched securitisation of Eximbank deals take off since they were pioneered two years ago. Now those agencies are moving to catch up. Following the recent first securitisation of a UK ECGD guarantee, France's finance minister has asked Coface, the French export credit agency, to revise procedures so that it can also allow securitisation. As yet, there is no indication that Hermes, its German counterpart, is prepared to follow suit. Airbus officials have long complained that the lack of a European securitisation option for export credits has put it at a disadvantage.
But the popularity of securitised Eximbank deals has forced the US credit agency to standardise practices in ways that might cool investor ardour. It has eliminated any payment election following default. The Eximbank will now accelerate payment on all floating rate debts and pay off fixed rates under the original payment schedule. Before, investors had a choice.
And financiers can no longer expect Eximbank to tailor documents to their needs. The growing workload has forced the agency to standardise its documents, says Robert Morin, Eximbank's general counsel. Instead, banks and underwriters will have to limit any special provisions to contracts between themselves. 'We think there's sufficient ingenuity out there for financiers to find a solution,' Morin told a recent AirFinance Journal conference.
Eximbank is also limiting opinion letters that confirm its guarantee carries the full faith and credit of the United States. Some foreign lenders have worried about this, since no US law expressly says that is the effect of Eximbank's guarantee. Morin says his agency will only issue opinions on registered securitisations, where a rating agency requires it. Moreover, Eximbank will only issue one opinion a deal.
Two other changes could hinder direct or private placement of securitisations. Such offerings are popular because they avoid the expense of Securities and Exchange Commission registration or the need for credit ratings.
Eximbank now insists that it deal with only one entity rather than a multitude of noteholders. Since the lending bank usually creates one paying and servicing agency this is not itself a problem. But it can become one when a noteholder sells its note or in the event of default, when Exim- bank wants all notes returned so it can pursue the debtor.
The secondary market in securitised notes may be inhibited by Eximbank's refusal to place its guarantee on more than one reissued note. One solution is to ask a separate entity to hold a master note on behalf of all parties, and track individual ownerships through electronic book entries.
But that raises the problem about timely return of the note to Eximbank after default. John Neblo, Chemical Securities capital markets vice president, says no escrow-type agency that handles electronic trades is willing to commit itself to determine whether a default has occurred or to return the note to Eximbank within any specified time.
The result is a standoff. But Neblo predicts underwriters eventually will devise ways around this.
David Knibb
Source: Airline Business
