The Export-Import Bank of the United States (EXIM) held its 2015 Annual Conference April 23 – 24. At the conference, four business leaders joined Sean Mulvaney, a member of EXIM’s Board of Directors, for a breakout session on short-term finance solutions. Panelists discussed how EXIM equipped their companies to overcome obstacles and grow their export sales.
In part two of this series, we’ll take a look at how Zeeco, Inc. leveraged EXIM support to win international projects by posting performance and advance payment guarantees.
John McDermott, Chief Financial Officer, Zeeco, Inc.
Zeeco, Inc.—headquartered in Oklahoma—is a worldwide source for the design and manufacture of combustion and environmental solutions. Zeeco serves customers in just about every nation that has a petroleum industry.
“We create fire on an industrial scale,” said John McDermott, CFO.
Zeeco’s transactions range from $500,000 to tens of millions of dollars, according to McDermott. Cycle times tend to be anywhere from six months to two years, depending on the project.
The company’s customers often demand the protection of performance and advance payment guarantees to award larger projects—contracts that safeguard buyers against suppliers’ failure to abide by agreed terms. Zeeco’s ability to provide potential customers with such assurance is integral to its international competitiveness.
The challenge? Banks and insurance companies require these guarantees to be collateralized by the exporter, often at 100 percent. This ties up precious working capital that could otherwise go toward creating value and fulfilling export orders. Additionally, exporters like Zeeco face special challenges, as lenders are often unable or unwilling to accept export-related assets (e.g., foreign receivables, export inventory) as collateral, given the difficulty of collection outside U.S. jurisdiction.
Fortunately for Zeeco, its lender—J.P. Morgan—partners with EXIM to assist exporters through the Working Capital Loan Guarantee Program. As an authorized lender, J.P. Morgan can underwrite and issue loans against export-related assets, backed by a 90 percent guarantee from EXIM on the borrower’s repayment. Facilities with an EXIM guarantee can be used to support the issuance of standby letters of credit serving as bid, performance and advance payment guarantees. Such guarantees need only be collateralized at 25 percent—a significant benefit to exporters seeking to maximize their liquidity.
EXIM worked with J.P. Morgan to equip Zeeco with the tools to meet buyers’ demand for protection and win projects that would have otherwise been out of reach.
“EXIM’s Working Capital Loan Guarantee enabled us to take our level of collateral and increase the facility available to us,” McDermott said. “Without EXIM, we would have to collateralize standby letters of credit dollar-for-dollar. With EXIM, it’s (a fraction of that).”
Flexible financing under the program empowered Zeeco to increase its international market share.
“The impact for us was the ability to go after larger projects and take on more projects concurrently,” McDermott said. “Without EXIM, our growth would be a fraction of what it is today.”
Want to Learn More About EXIM’s Working Capital Loan Guarantees?