Exclusive: U.S. Firms Raced to Get Government-Backed Financing Before the Money Disappeared
With the Export-Import Bank on the chopping block, American companies tried to get requests in under the wire.
This September, as the U.S. trade bank faced possible extinction, more American companies sought the bank’s backing than during any other month this year.
The future of the Export-Import Bank, the government agency charged with helping finance and insure U.S. companies’ trade deals, has been a target of small-government Republicans who sought to keep its charter from being renewed at the end of September. Congress eventually gave the bank a temporary extension until the end of June 2015, after many businesses — from the nuclear power industry to agriculture — trekked to Capitol Hill and complained bitterly to their lawmakers that the uncertainty over the agency’s future was causing them to lose out on international deals.
According to data obtained by Foreign Policy, more companies than usual rushed to get their applications in to the Export-Import Bank as the bank’s renewal hung in the balance in September.
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The export credit agency received 1,737 applications in September 2014 to create or renew financing for trade deals, including through loans, credit lines, and insurance policies. By comparison, 1,379 companies applied in August. The next-highest month this year was April, with 1,701 applications. It’s unclear how many of those applications were successful because the bank only discloses the largest deals. Transactions over $100 million are reported for the public and Congress to comment on.*
April, May, and June often see the greatest number of applications because many annual policies renew in the spring, according to the Export-Import Bank. But this year, there were more applications in September than the spring peak in April. The September 2014 number was also 19 percent higher than the 1,458 applications received in September 2013 and 31 percent higher than the 1,321 applications the agency got in September 2012.
The Export-Import Bank doesn’t release the names of companies that apply for export deal financing, so it’s hard to know what motivated September’s applicants. But the data and interviews with executives in the field suggest that at least some companies reconsidered their plans because of the showdown in Congress over the bank.
Gary Mendell is a broker who helps companies find trade financing from either the Export-Import bank or private banks. He said some bigger companies looked into alternative financing over the summer in case lawmakers shuttered Ex-Im, but most decided it wasn’t as good as what they could get from the trade bank.
"For small business, that activity didn’t even take place, because the private sector doesn’t have anything for small business," said Mendell, the president of Meridian Finance Group.
Some firms sought to renew Ex-Im policies early, seemingly in an attempt to avoid a termination or temporary shutdown of the bank at the end of September. Annual insurance policies can be renewed up to two months prior to their expiration, which allowed some companies to re-up policies in September that were set to expire later this fall, according to the Ex-Im Bank.
To be sure, the application numbers are only a small window into how companies finance their trade deals. While the uptick in applications could indicate concern among exporters about the bank’s future, it could also be part of a larger trend toward increased use of loans and insurance to back international deals. There are no publicly available numbers for the private sector, which finances a much greater share of overall exports.
Either way, the new numbers are unlikely to sway critics who see the trade bank as an unnecessary form of "corporate welfare."
Texas Republican Rep. Jeb Hensarling, the bank’s strongest opponent, doesn’t see anything good about the uptick in applications.
"Ex-Im is taxpayer-subsidized credit," Hensarling said in a statement. "So it’s no surprise there are those who want to take advantage of it."
Hensarling, who chairs the House Financial Services Committee, said the bank primarily benefits a handful of large corporations that are "fully capable of competing on their own without putting the risk on an already unsustainable taxpayer balance sheet."
Giant American companies like Boeing, General Electric, and Caterpillar use financing from the bank to compete with other large multinationals that receive backing from their home country’s export credit agency. But proponents of the bank argue that small companies in the U.S. — even though they’re a smaller portion of Ex-Im’s business — are really the ones that would be left high and dry if the agency’s charter expired. Either way, companies that rely on Ex-Im are likely to face more uncertainty this spring because of Republican gains in Tuesday’s midterm elections in the House of Representatives, where the debate over the bank has been fiercest.
Sharon Stratman, a chemist with Houston-based South Coast Products, said Ex-Im financing is crucial to the future of her business, which takes in about $20 million per year in revenue, nearly a third of which is from international deals with customers in Asia, Europe, and the Middle East.
South Coast Products uses Export-Import insurance so that it can ship orders to customers overseas and give buyers time to pay for their products. If a company buying South Coast’s products doesn’t pay, the insurance compensates South Coast Products. The Ex-Im Bank offers export insurance in addition to loans and credit lines to finance trade deals. This kind of insurance is very common in international trade deals, but Stratman says private insurers don’t want to take the risk of writing policies to back shipments to developing countries, where most of the oil and gas exploration is happening.
"We’ve had export insurance sales people come in before and do quotes for us and what we found at that time was that it was wildly more expensive and also that they just excluded countries that we ship a lot to like China, Indonesia, a lot of the new, fast-growing areas," Stratman said. "We’re not going to do anything else unless we absolutely have to because there’s nothing else that works for us."
Stratman said her company’s annual insurance policy is up in May 2015, a month before the bank’s charter is set to expire again in June. And they’ll be sending in their application again, just like this year.
"We’ll continue to apply and use it as long as it’s funded," Stratman said. "If it stops being funded, we’ll think of something else. We’ll probably just go without it."
* Correction, Nov. 5, 2014: The largest deals have to be disclosed to Congress and the public; an earlier version of this story misstated that Congress had to approve them. (Return to reading.)