Regulation (EU) No 1233/2011 of the European Parliament and of the CouncilShow full title

[F1 ANNEX XIII

Textual Amendments

F1 Substituted by Commission Delegated Regulation (EU) 2018/179 of 25 September 2017 amending Regulation (EU) No 1233/2011 of the European Parliament and of the Council on the application of certain guidelines in the field of officially supported export credits.

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF COUNTRY RISK MITIGATION TECHNIQUES AND BUYER RISK CREDIT ENHANCEMENTS U.K.

PURPOSE U.K.

This Annex provides detail on the use of country risk mitigation techniques listed in Article 30(a) of the Arrangement and the buyer risk credit enhancements listed in Article 31(a) of the Arrangement; this includes the criteria, conditions and specific circumstances which apply to their use as well as the impact on the MPRs.

COUNTRY RISK MITIGATION TECHNIQUES U.K.

1. Offshore Future Flow Structure Combined with Offshore Escrow Account U.K.

Definition: U.K.

A written document, such as a deed or a release or trustee arrangement, sealed and delivered to a third party, i.e. a person not party to the instrument, to be held by such third party until the fulfilment of certain conditions and then to be delivered by him to the other party to take effect. If the following criteria are satisfied subject to consideration of the additional factors listed, this technique can reduce or eliminate the transfer risks, mainly in the higher risk country categories.

Criteria: U.K.

• The escrow account is related to a foreign exchange-earning project and the flows into the escrow account are generated by the project itself and/or by other offshore export receivables.

• The escrow account is held offshore, i.e. located outside of the country of the project where there are very limited, transfer or other country risks (i.e. in a High Income OECD country or High Income Euro Area country).

• The escrow account is located in a first class bank which is not directly or indirectly controlled by interests of the obligor or by the country of the obligor.

• The funding of the account is secured through long-term or other appropriate contracts.

• The combination of the sources of revenues (i.e. generated by the project itself and/or the other sources) of the obligor flowing through the account are in hard currency and can reasonably be expected to be collectively sufficient for the service of the debt for the entire duration of the credit, and come from one or more creditworthy foreign customers located in better risk countries than the country in which the project is located (i.e. normally High Income OECD countries or High Income Euro Area countries).

• The obligor irrevocably instructs the foreign customers to pay directly into the account (i.e. the payments are not forwarded through an account controlled by the obligor or through its country).

• The funds which have to be kept within the account are equal to at least six months of debt service. Where flexible repayment terms are being applied under a project finance structure, an amount equivalent to the actual six months debt service under such flexible terms are to be kept within the account; this amount may vary over time depending on the debt service profile.

• The obligor has restricted access to the account (i.e. only after payment of the debt service under the credit).

• The revenues deposited in the account are assigned to the lender as direct beneficiary, for the entire life of the credit.

• The opening of the account has received all the necessary legal authorisations from the local and any other appropriate authorities.

• The escrow account and contractual arrangements may not be conditional and/or revocable and/or limited in duration.

Additional Factors to be taken into Consideration: U.K.

The technique applies subject to a case-by-case consideration of the above characteristics and, inter alia, with regard to:

• the country, the obligor (i.e. either public or private), the sector, the vulnerability in relation to the commodities or services involved, including their availability for the entire duration of the credit, the customers,

• the legal structures, e.g. whether the mechanism is sufficiently immune against the influence of the obligor or its country,

• the degree to which the technique remains subject to government interference, renewal or withdrawal,

• whether the account would be sufficiently protected against project-related risks,

• the amount which will flow into the account and the mechanism for the continuation of appropriate provision,

• the situation with regard to the Paris Club (e.g. possible exemption),

• the possible impact of country risks other than the transfer risk,

• the protection against the risks of the country where the account is located,

• the contracts with the customers, including their nature and duration, and

• the global amount of the expected foreign earnings in relation to the total amount of the credit.

Impact on the MPR U.K.

The application of this country risk mitigation technique may result in a one category improvement in the applicable country risk classification for the transaction, except for transactions in Country Risk Category 1.

2. Local Currency Financing U.K.

Definition: U.K.

Contract and financing negotiated in convertible and available local, other than hard, currencies and financed locally that eliminates or mitigates the transfer risk. The primary debt obligation in local currency would, in principle, not be affected by the occurrence of the first two country credit risks.

Criteria: U.K.

• The ECA liability and claims payment or the payment to the Direct Lender are expressed/made throughout in local currency.

• The ECA is normally not exposed to the transfer risk.

• In the normal course of events, there will be no requirement for local currency deposits to be converted into hard currency.

• The borrower's repayment in his own currency and in his own country is a valid discharge of the loan obligation.

• If a borrower's income is in local currency the borrower is protected against adverse exchange rate movements.

• Transfer regulations in the borrower's country should not affect the borrower's repayment obligations, which would remain in local currency.

Additional Factors to be taken into Consideration: U.K.

The technique applies on a selective basis in respect of convertible and transferable currencies, where the underlying economy is sound. The Participant ECA should be in a position to meet its obligations to pay claims expressed in its own currency in the event that the local currency becomes either ‘ non-transferable ’ or ‘ non-convertible ’ after the ECA takes on liability. (A Direct Lender would however carry this exposure.)

Impact on the MPR U.K.

The application of this risk mitigation technique may result in a discount of no more than 20 % to the country credit risk portion of the MPR (i.e. a local currency factor [LCF] with a value of no more than 0,2).

BUYER RISK CREDIT ENHANCEMENTS U.K.

The following table provides definitions of the buyer risk credit enhancements that may be applied, along with their maximum impact on the applicable MPRs through the CEF in the MPR formula.

Credit Enhancement	Definition	Maximum CEF (Country Risk Category 1-7)	Maximum CEF (Market Benchmark)
Assignment of Contract Proceeds or Receivables	In the event a borrower has contracts with strong off-takers, whether offshore or local, a legally enforceable assignment of the contract provides rights to enforce the borrower's contracts and/or make decisions under major contracts in the place of the borrower after a default under the loan. A direct agreement with a third party in a transaction (a local government agency in a mining or energy transaction) allows Lenders to approach a government to seek remedies for expropriation or other violation of contractual obligations related to the transaction. An existing company operating in a difficult market or sector may have receivables related to the sale of production with a company or companies located in a more stable environment. Receivables would generally be in a hard currency but may not be the subject of a specific contractual relationship. Assignment of these receivables could provide asset security in the accounts of the Borrower, giving the Lender a preferential treatment in the cash flow generated by the Borrower.	0,10	N/A
Asset Based Security	Control of an asset shown by: (1) mortgage on very mobile and valuable piece of property and (2) property that has entire value in itself. An asset based security is one that can be reacquired with relative ease such as a locomotive, medical equipment or construction equipment. In valuing such a security, the ECA should take into consideration the legal ease of recovery. In other words, there is more value when the security interest in the asset is perfected under an established legal regime and less value where the legal ability to recover the asset is questionable. The precise value of an asset-based security is set by the market, with the relevant ‘ market ’ being deeper than a local market because the asset can be moved to another jurisdiction. NOTE: The application of an asset based security credit enhancement applies to the buyer risk, where the asset based security is held internally within the country in which the transaction is domiciled.	0,25	0,15
Fixed Asset Security	A fixed asset security is most typically component equipment which may be constrained by its physicality such as turbine or manufacturing machinery integrated into an assembly line. The intent and value of the fixed asset security is to provide the ECA with more leverage over the use of the asset in recouping losses in the event of default. The value of a fixed asset security varies dependent on economic, legal, market and other factors.	0,15	0,10
Escrow Account	Escrow accounts involve debt service reserve accounts held as security for the lenders or other forms of cash receivable accounts held as security for the lenders by a party not controlled or sharing common ownership with the buyer/obligor. The escrowed amount must be deposited or escrowed in advance. The value of such security is nearly always 100 % of the nominal amount in such cash accounts. Permits greater control over use of cash, ensures that debt is serviced before discretionary spending. NOTE: The application of an escrow account credit enhancement applies to the buyer risk, where the escrow account is held internally within the country in which the transaction is domiciled. Cash security significantly diminishes the risk of default for the covered instalments.	escrowed amount as % of credit up to a maximum of 0,10	escrowed amount as % of credit up to a maximum of 0,10]