Export Development Canada Securing Exporter’s and Investors Obligations International ECA Bonding Workshop Rome, Italy

1. Export Development CanadaSecuring Exporter’s and Investors ObligationsInternational ECA Bonding WorkshopRome, Italy May 24-25th, 2007

2. Agenda • Various business scenarios • Overview of providing security • EDC’s partnership with banks • EDC’s partnership with sureties • EDC’s Underwriting Guidelines and Pricing Methodology

3. Securing Obligations 1.Various Business Scenarios

4. Scenario - Contract Bonding • Typical contract bonds: • Bid • Performance • Labour and Material Payment • Advance or Progress Payments • Warranty or Maintenance

5. Scenario - Regulatory Obligations While conducting their export business, companies may need to post security to a regulatory body (e.g. licences, customs). Requirement may be domestic or in a foreign jurisdiction.

6. Scenario - Securing Suppliers With the expansion of international supply chains, exporters are often faced with collateral demands from domestic and foreign suppliers. This security is usually required to support open account terms.

7. Securing Investments In acquiring and developing facilities in foreign jurisdictions, exporters and investors often have to post security to local authorities and other stakeholders. Licensing, joint ventures obligations and local content programs are just some examples.

8. Scenario - Securing a FX Facility Exporters sometimes require a foreign exchange facility to access forward contracts. Financial institutions, including foreign exchange service providers, may require security from the exporters to make such a facility available.

9. Securing Obligations 2. Two ways of Securing Obligations

10. Two ways of securing obligations 1. Letter of guarantee • Also known as a “standby letter of credit” • Issued by a bank • Payable on first demand (irrevocable) • Carry an expiry date • Used world-wide • Usually for 10% of contractual value

11. Local Bank Canadian Bank Issuing a Letter of Guarantee Letter ofGuarantee (LG) Buyer Contract Counter-Guarantee $ Exporter Collateral

12. Letters of Guarantee - Profile • Reduces operating line of credit • Cost - up to 1% p.a., sometimes more, per institution • Not linked to contract • Extended risk profile – wrongful call • Accessible by all • Fast and standardized

13. Two ways of securing obligations Surety Bond • Issued by an insurance company (licensed surety) • Default has to be proven • Expiry tied to completion of contractor’s obligations • Used mostly in the US • Primarily for construction industry • Surety role to remedy default

14. Surety - Remedies When issuing a “bond”, the surety undertakes to… • Arrange for the Principal to perform and complete the contract; • Undertake to perform and complete the contract itself; • Secure proposals from qualified contractors for completion of the contract, and pay to the Owner the amount in excess of the balance of the contract price; • Deny liability in whole or in part; • Pay a settlement

15. Securing Obligations 3. Securing Letters of Guarantees

16. Letter ofGuarantee Buyer Local Bank Counter-Guarantee $ PSI (95%) PSG (100%) Exporter Indemnity Agreement (PSG) Canadian Bank Leveraging Capacity Contract

17. Performance Security Guarantee (PSG) • Issued to the Exporter’s Bank • 100% irrevocable and unconditional guarantee • Full risk transfer for the Bank • EDC has recourse (indemnity agreement) to the Exporter • Primary risks to EDC is the Exporter

18. Key Clauses - Guarantee 2. In consideration of the payment by the Bank to EDC of the PSG Fee and subject to the terms and conditions hereof, EDC hereby unconditionally and irrevocably guarantees to the Bank payment of the Guaranteed Amount… EDC agrees that its obligations to the Bank hereunder shall not be adversely affected and that this PSG shall not be voided by reason of any statement, declaration, certification, representation or warranty, made or given by the Exporter, being untrue, incomplete or incorrect in any way or to any extent.

19. Key Clauses – Bank’s Obligations 3.The Bank shall: (1) advise EDC forthwith of any demand under the Bank Instrument or the Bank Instructions or any notice of intention to demand under the Bank Instrument or the Bank Instructions; and (2) at the request of EDC and subject to any legal or confidentiality restrictions affecting the Bank: (a) provide EDC with all information in its possession with respect to any matter under this PSG; (b) take all reasonable steps to allow EDC to obtain any information or to review any document that relates to this PSG and that is in the possession of a third party; and (c) permit EDC, at its cost, to make copies of all letters, communications, accounts with respect to the Bank Instrument, or other documents in the possession or control of the Bank relating to any matter under this PSG.

20. Key Clauses – Request for Payment 4. (1) If the Bank makes a full or partial payment to the Beneficiary or to the Foreign Bank under the terms of the Bank Instrument or the Bank Instructions, the Bank may submit a payment request to EDC under this PSG. The Bank is not required to, before submitting a payment request hereunder, (a) demand payment of the Guaranteed Amount from the Exporter or from any other person who is required to reimburse the Bank under a reimbursement agreement, guarantee or security agreement ("Other Person"), or (b) pursue any rights or remedies against, or take any action against, the Exporter or any Other Person, including enforcing any security interest held by the Bank against the Exporter or any Other Person or filing any claim in the bankruptcy, insolvency, reorganization or winding-up proceedings of the Exporter or any Other Person. If the Bank has made partial payments, the Bank may submit a payment request hereunder for each such partial payment.

21. Key Clauses – Request for Payment 4.(3) Notwithstanding anything to the contrary hereunder, when a demand for payment is made to the Bank under the Bank Instrument or the Bank Instructions, as the case may be, in strict compliance with the terms thereof, and the Bank is prohibited from making payment in response to such demand as a result of an Injunction, then any payment by the Bank within thirty (30) days of the lifting of the Injunction, in accordance with its obligations under the Bank Instrument or the Bank Instructions, as the case may be, or according to its obligations under applicable law, will be deemed to be a payment made by the Bank under Section 2(1).

22. Key Clauses - Payment 5.Within five Business Days of receipt of a PSG payment request form EDC shall pay the Guaranteed Amount to the Bank provided that EDC may deduct from such payment any amount that the Bank may have received as a return or repayment with respect to the Guaranteed Amount during the interim between the date on which the payment request was made hereunder by the Bank and the date of payment by EDC.

23. PSI (Wrongful call) Basics • Insurance policy issued to the Exporter • Risks Insured…loss resulting from … • Wrongful or frivolous call by Buyer • Events outside Exporter’s control • Covers 95% of the letter of guarantee value • Primary risk to EDC is the Buyer (morality, country, etc.)

24. Securing Obligations 4. Suretyship

25. Surety Program Parameters • EDC does not issue surety bonds – acts as Reinsurer • We follow market practices (e.g. pricing) and standards (e.g. documentation) • Active partnerships with key market leaders

26. Surety Partnerships EDC does not direct surety business – we focus on collaborating with our exporters’ partners. Existing Reinsurance Partnerships with; St-Paul Guarantee ACE-INA, AIG, Chubb, CNA, AXA, GCNA and Aviva

27. EDC Surety Services Leveraging Surety Partnerships Surety Services • RISK SHARING • Providing additional capacity for existing surety customers • EDC and surety share the risk • FRONTING • Surety bonds issued by U.S licensed surety • EDC assumes 100% of the risk • Accessing a surety network on behalf of Canadian exporters • SURETY LINES • Pre-approved facility for specific customers • Multiple transactions • Risk sharing with surety • SURETY TREATY • Pre-approved facility for multiple customers • Multiple transactions • Risk sharing with surety

28. Surety Bond – Risk Sharing Surety Bond Buyer Reinsurance (< 100%) Surety Indemnity Agreement Exporter

29. Surety Bonds - Fronting Surety Bond Buyer Reinsurance (100%) Surety $ Indemnity Agreement Exporter

30. Securing Obligations 5. Underwriting Guidelines and Pricing

31. Risk Factors Two questions: 1. Does the Exporter have the technical, managerial and financial capabilities to successfully undertake the contractual obligations? • Are there any factors that impact the answer to question no 1? (e.g. corporate financial profile, work order book, succession planning, country, bank relationship, etc.) A key tool is the Bonding Questionnaire.

32. Business Rules “Algerian Letters of Guarantee and Counterguarantees” “Custom Bonds and Carnet” “Position on Iran – Update” “Securing Exporter’s Obligations” “Enhancing and Securing Indemnities”

33. Grazie - Merci – Thank you