After two years of negotiations, a revised Arrangement will enter into force on July 15th.
It is a modernization of the rules for export credits and export credit insurance issued by different countries. In the Netherlands, these rules only apply to Atradius DSB’s export credit insurance. Generally speaking, the conditions that transactions must meet will be relaxed and simplified, and more specifically, there will be significantly more opportunities to insure or finance green projects on even more favourable terms.
The main rules set by the Arrangement relate to the term of export credit, the repayment profile of the loan, the minimum premium and the size of the amount that may be insured in relation to the export contract. In addition, there are rules applicable when a fixed rate export credit is issued.
Most of these main rules are changing drastically:
- The maximum repayment term for export credits is changing. The main rule still remains that the maturity of a credit does not exceed the useful life of the good or service. However, the Arrangement sets a maximum to the repayment term. These rules are simplified and broadened. In the old Arrangement there were many different maximum repayment terms, now there is only a maximum of 15 years, regardless of destination country. For transactions under the Climate Change Sector Understanding (see below) and nuclear power plants, there are even longer repayment terms possible (up to 22 years).
- More variation allowed in the repayment profile of credits. The main rule still remains that export credits have semi-annual linear repayments. However, there will be more possibilities to deviate from this and the extent of deviations will also be broadened. The special rules for project financing will disappear. A repayment profile other than linear will be allowed under certain conditions, provided it can be substantiated that the buyer's income necessitates or justifies such a different repayment profile. Those preconditions are as follows:
- The first repayment is made no later than after 24 months ("grace period");
- No more than 35% of the primary sum is ever paid in a six-month period ("balloon payment");
- The Weighted Average Life (WAL) of the loan is capped.
- Lower premiums for buyers outside high-income countries who have a credit rating less than investment grade (i.e., BB+ or less) for loans with terms longer than 10 years.
- A stronger link between export credits and the global climate agenda results in a vast expansion of the Climate Change Sector Understanding (CCSU). This is leading to many more possibilities for green-labeled export credits and insurance. Such transactions now have even longer permitted repayment terms, from 18 to 22 years depending on the project category. In addition, a longer grace period (2.5 years), a larger balloon payment (35%) and a higher WAL (70%) are allowed. Also, the scope of the CCSU has been greatly expanded to include a large number of new climate mitigation project categories and the climate adaptation section has been completely updated.
About the Arrangement on officially supported export credits
Governments that want to support their national export with export credit insurance or financing must follow rules. These rules are contained in the Arrangement on Officially Supported Export Credits, hereafter ‘The Arrangement’. This is a gentlemen's agreement between the participating countries ("Participants"), but for the countries that are members of the European Union, this agreement has a legal status because it has been translated into European regulations.
The Arrangement came into being in 1978. Since then, many provisions have been added including several sector understandings such as the Ship Sector Understanding (SSU). The Arrangement determines the most favorable conditions under which governments may support exports. Being stricter is always allowed. An important principle of the Arrangement is that the Participants are transparent among themselves about what they insure on what terms.
Some of the products offered by Atradius DSB are not covered by the Arrangement but are subject to EU state aid rules. This is particularly the case when the ultimate beneficiary of the product is a Dutch company - the exporter. This is the case, for example, with working capital insurance, green cover, domestic cover and counter-guarantees.
Contact
For more information please contact Ingeborg van den Nieuwendijk and/or Ivo Habets via dsbinternationaldesk@atradius.com or your accountmanager.
Useful links:
The full text of The Arrangement on the webpage of the OECD: Export credits - OECD.
A FAQ document with questions and answers on the most important changes:
June 2023 - FAQ new Arrangement.pdf (oecd.org)