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Facility Guarantee Program (FGP)
Frequently Asked Questions 

 

Q: What is the Facility Guarantee Program?

A: The Commodity Credit Corporation's (CCC) Facility Guarantee Program (FGP) provides payment guarantees to facilitate the financing of manufactured goods and services exported from the United States to improve or establish agriculture-related facilities in Emerging Markets. By supporting such facilities, the FGP is designed to enhance sales of U.S. agricultural commodities and products to Emerging Markets where the demand for such commodities and products may be limited due to inadequate storage, processing, handling or distribution capabilities for such products.

Q: How does the FGP work?

A: The mechanism behind the FGP is the same as for CCC’s GSM programs. CCC guarantees a credit established by a U.S. bank to an importer’s bank. The eligible U.S. bank, working with the exporter, has agreed to extend credit to finance the sale of equipment, goods or services for an FGP approved project. The eligible importer’s bank, working with developer of the project, agrees to issue a dollar-denominated letter of credit in favor of the exporter.

Q: Which countries are defined as Emerging Markets?

A: The Federal Agriculture Improvement and Reform Act of 1996 defines an emerging market as any country that:

1. Is taking steps toward a market-oriented economy through the food, agriculture, or rural business sectors of the economy of the country and;

2. Has the potential to provide a viable and significant market for United States commodities or products of United States agricultural commodities.

Q: Is there a list of Emerging Markets?

A: There is no fixed, established list of "emerging market" countries. In addition to the legal definition stated above, the following administrative criteria is used to determine whether a given country is considered an emerging market:

1. Per capita income less than $8355 (the food aid per capital income cut-off figure of OECD’s Development Assistance Committee)

        2. Population greater than 1 million.

Q: Can other Emerging Markets be considered for the FGP?

A: Yes. USDA will consider requests to program countries not covered by the announcements where the country is eligible to participate in the Export Credit Guarantee Program (GSM-102) and where an exporter has evidence to suggest that the FGP would primarily benefit U.S. agricultural exports.

Q: Where do I send a request for a country to be considered for the FGP?

A: Requests should be sent to the Director, Program Planning, Development and Evaluation Division, Export Credits, Stop 1034, 1400 Independence Ave., SW., Washington D.C., 20250 or Fax (202) 690-0251. In your request, please identify the country or countries and include a description of your project(s) interests and how U.S. exports of agricultural commodities will benefit from improved storage, processing, or handling capabilities in that emerging market.

Q: How do I know what projects are eligible for the FGP?

A: USDA will not designate specific projects and solicit proposals from exporters. USDA wants private sector importers, exporters and the banking sector to determine which projects are commercially viable. The FGP will support the financing of projects that focus on improvements to the storage, processing, handling or distribution of agricultural commodities. The exporter, with information from the importer, must make a reasonable economic argument that the project will primarily benefit U.S. agricultural commodity exports.

Q: Do all the exports of agricultural commodities to be used by a proposed facility have to be from the U.S.?

A: No. USDA will approve a FGP credit guarantee where evidence suggests that U.S. agricultural commodity exports will represent at least 50 percent of the expected through-put of the proposed facility.

Q: How can I get information to show that the project will primarily benefit U.S. agricultural commodities.

A: The Foreign Agricultural Service can provide historical data on the U.S. market share of commodities imported into the emerging market. Recent publications may project trends for the coming years. The Agricultural Attaché in the emerging market can also provide specific expertise on the outlook for U.S. sales of agricultural raw materials or processed food products. The importer also should have a business plan projecting the need for imported commodities and the volume and sales potential for finished products. The importer can give his expectations regarding the U.S. as a source of supply for the agricultural commodities verses possible competitors.

Q: How does an importer become eligible to participate in these programs?

A: The CCC does not determine importer eligibility. Any buyer located in the targeted emerging market may enter into a sales contract with an eligible U.S. exporter and work with a CCC-approved foreign bank to arrange for the letter of credit required for CCC coverage. Importers in some countries may be constrained by their own government's rules and regulations concerning the importation of certain products or the ability to set up the letter of credit as required by the CCC.

Q: Is there a down payment required under the FGP like other programs for equipment exports?

A: Yes, CCC requires a minimum 15 percent initial payment by the importer. This is a requirement of the Organization for Economic Cooperation and Development (OECD) that applies to all export credit agency financing programs. The initial payment does not have to be cash, separate financing or perhaps equity share can be used as evidence of the initial payment.

Q: What is covered by the FGP credit guarantee?

A: After the initial payment is deducted from the sales contact price, the FGP guarantee covers 95 percent of the facility base value (the value of goods and services to be exported less any discounts or allowances to the importer). A portion of the interest on the financing is also guaranteed. Interest coverage is the same as CCC’s GSM-103 program and typically covers about 70 percent of the interest exposure on the credit extended by the U.S. bank to the importers bank.

Q: Will the FGP cover local materials used in the construction of the project?

A: No, the FGP guarantee only covers goods and services that are exported from the United States. Local costs, construction materials, labor or food and lodging for U.S. service personnel are not covered.

Q: Can freight costs, or maritime insurance be covered under the FGP?

A: Yes. If the sale of equipment or goods is made on a Cost and Freight (CFR) or Cost, Insurance and Freight (CIF) basis, the cost of freight or freight and insurance can be covered under the FGP. If the goods are shipped on a foreign flag carrier the freight costs would be considered as eligible foreign content. If maritime insurance is placed with a U.S. agent, the cost is considered U.S. content.

Q: What is the fee for the FGP?

A: A fee table is part of each FGP country or region program announcement. Exposure fees can vary by the risk of each country, the length of term and whether the importer’s bank is private, public or sovereign.

Q: Can the exposure fee be included in the sales contact price and therefore be in the credit extended?

A: Yes, CCC expects that most exporters and importers will include the fee in their contract sales price and the U.S. bank will extend credit to include the exposure fee.

Q: How does an importer find out which banks can participate in the FGP?

A: The Agricultural Attaché in the emerging market can advise the importer in which banks are eligible for CCC’s export credit guarantee programs. The importer’s bank might have participated in the GSM-102 program, but may be unaware of the FGP. If so, the Agricultural Attaché can provide the bank with information about the FGP. The credit limit established by CCC for approved foreign banks applies to all CCC export credit programs, including the FGP. The list of CCC approved foreign banks is available on the USDA/FAS homepage at the following address: (http://www.fas.usda.gov/dam/fmd/banks/banks.htm). This list is subject to changes and updated monthly. Information about a bank’s credit limits, current exposure, and available limit should be discussed directly with the importer’s bank.

Q: When should the exporter and the importer begin discussions with their respective banks?

A: Discussions with the banks involved should begin early in the project’s development and prior to preparation of the FGP application. One requirement in the FGP preliminary application is an expression of interest by both the U.S. and importer’s bank. Further action by the banks can, of course, be contingent upon CCC issuing its letter of preliminary commitment.

Q: If an export sale is covered by the FGP payment guarantee, what kind of terms can an importer expect from their bank?

A: Importers should keep in mind that CCC’s guarantee covers only the financing arrangements extended to the their bank. Extension of credit (the repayment time, intervals between payments and the interest rate) by the financial institution in the United States to the importer’s bank does not mean that the importer will receive the same credit benefits from their bank. Credit (perhaps in local currency) extended to the importer by their bank is strictly a matter for negotiation between the importer and that bank.

Q: Why is a letter of credit necessary?

A: A letter of credit is a well-established commercial instrument used to effect payment for all sorts of transactions. It remains an effective means to ensure that documentation of the transaction is available should it be needed by the CCC. Issuing an irrevocable letter of credit also requires the importer’s bank to assess the importer's financial capabilities.

Q: If private financial institutions in the United States are financing shipments under letters of credit, why is a CCC guarantee necessary?

A: A CCC guarantee can encourage extension of credit in cases where financial institutions might otherwise be unwilling to finance exports on credit terms. The guarantee may also facilitate credit to an importer’s bank in larger amounts and on more favorable commercial terms than would otherwise be available.

Q: How is the interest rate determined?

A: The financial institutions in the United States and the approved banks opening the letters of credit negotiate their own terms. Usually, the interest rate is linked to the U.S. prime rate or the London Interbank Offered Rate (LIBOR) on a floating (periodically adjusted) basis.

Interest rates on any credit extended to the importer by the local bank are a matter for the importer's negotiation with that bank.

Q: How is the interest paid?

A: Interest and principal are usually paid by routine bank transfers to the financial institution in the United States that finances the transaction. Payments are made at rates and intervals defined in the letter of credit or the related financing agreement between the U.S. bank and the importer’s bank. The FGP requires that total accrued interest and principal be paid at least semi-annually. The banks can agree to terms that call for more frequent repayment intervals.

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