Funding products and guarantees: The Credendo experience

In the last few years, Delcredere | Ducroire, the parent company of Credendo Group, has launched various initiatives to support the financing of Belgian export operations. First of all, there’s the direct financing of SMEs by way of forfaiting and the buyer credit, as a suppletive product to fill in the gap in the market. Besides these two direct financing tools, there are several indirect financing instruments. Credendo thus stimulates bank financing of exporters through its financial guarantees. Furthermore, there’s the Credendo financial guarantee for private bond issues, besides the possibility of using Credendo policies in covered bonds of banks. Finally, there is the export funding guarantee.

Forfaiting

In 2004 Credendo started offering ‘forfaiting’ as a financing product for (relatively) small credits from two to five years which Belgian exporters offered to their foreign buyers (‘supplier credit’). It was launched as a ’suppletive product’, meant to fill in the gap left by the commercial banks. A supplier credit means that the exporter itself prefinances the contract and production, and grants its buyer the credit. This credit is materialised in bills of exchange or promissory notes. Forfaiting means that Credendo is discounting these bills of exchange or promissory notes, i.e. buys them from the exporter. It is thus an indirect financing of the buyer. This financing product was created to be used in parallel with the credit insurance product that covers the nonpayment and termination risk for the exporter. SMEs are clearly the main target for the forfaiting product. Since the launch of the forfaiting product, Credendo has several times enlarged its scope, increased the capacity provided and made its terms and conditions more flexible in order to meet as much as possible the exporters’ needs.

Buyer credit

Credendo further increased its efforts to facilitate export financing for SMEs. This is aligned with the strategy of the Belgian government which stressed the importance to support SMEs going abroad. Early 2016, Credendo launched a new financing product, the buyer credit. Under this new product, Credendo will be granting the financing directly to a foreign buyer of Belgian goods and services. After delivery and presentation of the necessary documents to Credendo, the exporter will be paid by Credendo, in the same way as he would be under a buyer credit granted by a bank. The foreign buyer will reimburse the credit over two to five years. The credit amounts considered are between €2 million and €5 million. The exporter has to enter into a credit insurance policy with Credendo to cover its termination risk under the commercial contract.

For both financing products, the OECD Arrangement applies. In addition to the new financing instruments, Credendo has also launched a specific SME desk to offer a more comprehensive service to SMEs. On the business development side as well, efforts have been made to attract more SMEs.

Financial guarantees for bank credits

Credendo can participate in credits that a Belgian company needs for its trade transactions. Banks consider Credendo as an attractive partner thanks to its credit rating (AA with S&P). There are three kinds of credit facilities which each have a different purpose:

• the issuing of bank bonds (bid bonds, advance payment bonds, performance bonds, etc.);
• the financing of a company’s working capital;
• the financing of investments abroad (buildings, machinery, equipment).

A link with the company’s international business is always compulsory. The target is clearly to promote Belgian export trade.

Support for bond issues

Credendo can assist a Belgian company and bank in finding additional funds for bond issues on capital markets. This support can appear in two ways.

The first is a financial guarantee by Credendo in favour of investors who are willing to subscribe to a privately contracted bond issue (not via public markets). The bond is issued by a Belgian business with international operations, and it covers its payment obligations in favour of the bondholders or their trustees (acting as a proxy for the bondholders). In principle, 50% of the bond amount is guaranteed.

Another recent development concerns the covered bonds. After the subprime credit crisis of 2008, securitisation was no longer evident due to a crisis of confidence. But the Belgian law of 3 August 2012 made the issue of Belgian covered bonds possible. Only banks accredited by the Belgian central bank can issue them on the public markets. The law foresees that these bonds are covered by several debt categories, for example mortgage loans. Another coverage possibility is offered by debt claims on or guaranteed/insured by public institutions. And this is where can Credendo intervene: Credendo’s insurance policies in favour of the bank were recognised by the Belgian central bank as an asset which can be pledged for the covered bond issue. But of course, this depends on the bank. Up until now it hasn’t been used yet as there is enough liquidity.

Export funding guarantee

Credendo has another product that can help banks to finance large amounts in export transactions, i.e. the export funding guarantee. The purpose is to facilitate the financing of Belgian export transactions by providing banks with access to funding at more competitive conditions, hereby contributing to solving the liquidity cost issue that commercial banks (and in particular European banks) faced in the aftermath of the financial crisis. Banks that finance an export credit with Credendo’s insurance can refinance themselves with external investors based upon a 100% guarantee by Credendo. It’s an unconditional guarantee on first demand that can be called by the investor if the bank, for whatever reason, does not reimburse at maturity. The aim is also to indirectly provide cheaper funding to Belgian exporters. However, the product has not been used up until now since the liquidity situation of most banks has improved.

Conclusion

The examples above show that Credendo has taken a lot of initiatives to stimulate the Belgian export financing in the last ten years, targeting in the first place the SMEs. All these initiatives should have a positive stimulating effect on the Belgian economy.

Paul Becue

Technical Communication Specialist, Delcredere | Ducroire