The U.S. government promotes U.S. exports to create domestic jobs and to support the international expansion of U.S. companies of all sizes through three specialized agencies: the Overseas Private Investment Company ("OPIC"), the Export-Import Bank (the "Ex-Im Bank"), and the U.S. Trade and Development Agency ("TDA"). U.S. companies can utilize the various programs of OPIC, the Ex-Im Bank, and TDA to foster their own foreign expansion. This article summarizes the activities of these U.S. federal agencies and explains how they can help U.S. companies proper internationally.

OPIC: Insuring U.S. Foreign Investment Abroad

OPIC’s core mission is to support economic development by promoting U.S. private investment in developing countries and transition economies. Its programs currently are available in more than 150 countries. In order to be eligible for OPIC support, an applicant must meet the following criteria:

  • Be a citizen of the United States;
  • Be a corporation, partnership or other association created under the laws of the United States, its states or territories, and be beneficially owned by U.S. citizens;
  • Be a foreign corporation at least 95 percent owned by investors eligible under the above criteria; or
  • Be a foreign entity that is 100 percent U.S.-owned.

As highlighted below, OPIC provides both political risk insurance and financial support. OPIC generally provides assistance for new investments, privatizations, and expansions and modernizations of existing businesses. Acquisitions of existing operations are eligible for financing if the investor contributes additional capital for modernization and/or expansion.

OPIC’s major support for foreign investment is through the provision of political risk insurance. This includes the following products:

  • Currency Inconvertibility – deterioration in the investor’s ability to convert profits, debt service, and other investment returns from local currency into U.S. dollars and to transfer U.S. dollars out of the host country.
  • Expropriation – loss of investment because of expropriation, nationalization, or confiscation by the host government.
  • Political Violence – loss of assets or income because of war, revolution, insurrection, or politically motivated civil strife, terrorism, or sabotage.

OPIC can insure up to $250 million per project (and up to $300 million for offshore oil and gas projects with hard currency revenues) and has no minimum investment size requirements. The term of an insurance policy for an equity investment may extend up to a maximum of 20 years.

OPIC can insure up to 90 percent of an eligible investment. OPIC’s statute generally requires that the investor bear at least 10 percent of the risk of loss. However, loans and capital leases from financial institutions to unrelated third parties may be insured for 100 percent of principal and interest. For equity investments, OPIC typically issues insurance commitments equal to 270 percent of the initial investment—90 percent representing the original investment and 180 percent to cover future earnings. Coverage amounts may be limited for investments in countries where OPIC has a high portfolio concentration.

In addition to straight political risk insurance programs, OPIC has several insurance programs offering coverage tailored to meet political risk and other performance issues associated with certain types of foreign investments. These special programs include: institutional loans, capital market transactions, leasing, oil and gas, national resources (except oil and gas), and contractors and exporters. For contractors and exporters, for example, OPIC insures against the wrongful calling in of a bid, customs bonds, and losses because of certain breaches by the foreign buyer of the contractual disputes resolution procedure. This insurance is in addition to OPIC’s standard political risk insurance.

OPIC’s Quick Cover program allows certain projects in the financial services, wireless telecommunications services, electricity distribution and hotel sectors to receive political risk insurance coverage on an expedited basis. Insurance coverage under this program will be put in place for projects meeting OPIC’s criteria within two weeks of receipt by OPIC of a completed application by the investor.

While OPIC is mostly known for its various insurance policies, OPIC can provide medium- and long-term financing in countries where conventional financial institutions are either unwilling or unable to provide such assistance. OPIC specifically provides loan guarantees for large projects and, under certain conditions, direct loans to small business. OPIC can guarantee or loan anywhere from $100,000 to up to $250 million, taking into account such factors as: the project’s contribution to the host country’s development, the project’s financial requirements, and the extent to which the financial risks are shared among the investors and the lenders. OPIC financing is designed to complement other public and private sector financing, and often involves at least one other lender or independent investor.

Ex-Im Bank: Financing Opportunities Abroad

The Ex-Im Bank is the official export credit agency of the United States. Its mission is to assist in financing the export of U.S. goods and services to international markets. Qualified exporters must be located in the United States, have at least a one-year operating history, and have a positive net worth. Eligible exports, in turn, must be shipped from the United States and have at least 50 percent U.S. content. Eligible services must be performed by U.S. personnel.

Among its primary activities, Ex-Im Bank provides working capital guarantees (pre-export financing), export credit insurance, and loan guarantees and direct loans (buyer financing). There is no minimum or maximum transaction amount. The Country Limitation Schedule is used to identify what sort of public and private investments are supported for a particular country. On average, 85 percent of Ex-Im Bank’s transactions directly benefit U.S. small businesses.

The Ex-Im Bank’s pre-export financing enables U.S. exporters to obtain commercial loans backed by the Ex-Im Bank’s guarantees to produce or buy goods or services for export. Exporters may use the guaranteed financing to: (1) purchase products for export; (2) pay for raw materials, equipment, supplies, etc; (3) cover stand-by letters of credit serving as bid bonds, performance bonds, or payment guarantees; or (4) finance foreign receivables. The Ex-Im Bank generally assumes 90 percent of the bank loan, including principal and interest.

The Ex-Im Bank also assists exporters by guaranteeing term financing to creditworthy international buyers, both private and public sector, for purchases of U.S. goods and services. This enables foreign purchasers to obtain competitive term financing which would otherwise be unavailable. Most guarantees are used to purchase U.S. capital equipment and services, although financing is also available for software, some banking and legal fees, and certain local costs and expenses. Ex-Im Bank also offers guarantees and direct loans to finance U.S. exports for the construction and operation of projects through structured finance transactions, including limited recourse project finance.

As with OPIC, the Ex-Im Bank provides insurance policies to limit a U.S. exporter’s risk in international transactions. The Ex-Im Bank’s export credit insurance covers the risk of buyer nonpayment for commercial risks (e.g., bankruptcy), and certain political risks, such as war or the inconvertibility of currency. Enhanced coverage exists for qualifying small businesses, such as a no first-loss deductible and a simplified premium-rate schedule. The Ex-Im Bank’s export credit insurance further enables exporters to provide qualifying international buyers with advantageous terms of credit.

TDA: Doing Well By Doing Good

Somewhat akin to the U.S. Agency for International Development, the TDA is primarily an international development agency that seeks to promote economic growth in developing and middle income countries around the world. However, unlike a traditional international development organization, TDA meets its mandate by promoting U.S. commercial interests as an engine for international development. Thus, TDA focuses on economic sectors that are vital to overseas development and strategic to U.S. business interests.

TDA generally operates at two levels. At the macro level, TDA provides technical assistance in the areas of laws and regulations, technical standards, and sector policies. At the micro level, TDA promotes U.S. business interests in a variety of ways. It works and gives grants to overseas project sponsors who, in turn, select U.S. companies to perform TDA-funded activities. It also provides training if an overseas project sponsor awards a procurement contract to a U.S. firm. The TDA funds feasibility studies to evaluate the technical, financial, legal, and economic aspects of a development project, which may lead to U.S. exports. TDA-sponsored reverse trade missions offer U.S. suppliers an opportunity to showcase their products to foreign procurement officials interested in purchasing U.S. goods and services. Finally, TDA workshops and conferences provide U.S. firms with face-to-face contact with key foreign procurement officials.

OPIC, Ex-Im Bank, and the TDA can assist U.S. companies in their efforts to expand overseas and find new foreign buyers for U.S. goods and services. Small and medium-sized businesses are especially encouraged to take advantage of these programs. Reed Smith’s Export, Customs & Trade team can review with you the eligibility and application requirements for OPIC, Ex-Im Bank, and TDA, so that your company can maximize its international opportunities.

This article is presented for informational purposes only and is not intended to constitute legal advice.