Commission Delegated Regulation (EU) No 727/2013 of 14 March 2013 amending Annex II to Regulation (EU) No 1233/2011 of the European Parliament and of the Council on the application of certain guidelines in the field of officially supported export credits

• — assets held offshore, especially liquid assets, often as a result of rules allowing exporters to trap and maintain cash balances offshore that are available for debt service.

Normally the SOV+ buyer risk category is not applicable to:

• — Publicly owned entities and utilities, sub-sovereigns as line ministries, regional governments, etc;

• — financial institutions domiciled in the sovereign’s jurisdiction; and

• — entities primarily selling to the domestic market in local currency.

Sovereign (SOV)

Sovereign obligors/guarantors are entities that are explicitly legally mandated to enter into a debt payment obligation on the behalf of the Sovereign State, typically Ministry of Finance or Central bank [^ntr36-L_2013207EN.01009901-E0001]. A risk designated as sovereign is one where:

• — the obligor/guarantor is legally mandated to enter into a debt payment obligation on behalf of the Sovereign and thereby commits the full faith and credit of the sovereign; and

• — in the event of rescheduling of sovereign risk, the debt in question would be included in the rescheduling and payment obligations acquired by the sovereign by virtue of the rescheduling.

Equivalent to the Sovereign (CC0): Exceptionally Good Credit Quality

The “equivalent to sovereign” category embraces two basic types of obligors/guarantors:

• — Public entities where due diligence reveals that either the buyer has the implicit full faith and credit/support of the sovereign or that the likelihood of sovereign liquidity and solvency support is very high, both in relation to recovery prospects as well as default risk. Non-sovereign public entities equivalent to the sovereign would also include companies owned by the government with a monopoly or near monopoly on operations in a sector (e.g. power, oil, gas).

• — Corporate entities with an exceptionally strong credit profile, displaying features in terms of both default and recovery prospects which indicate that the risk could be seen as being equivalent to sovereign. Candidates could include strong blue chip corporates or very important banks for which the likelihood of sovereign liquidity and solvency support is high.

Exceptionally good credit quality implies that the risk of payment interruption is expected to be negligible and that the entity has an exceptionally strong capacity for repayment and this capacity is not likely to be affected by foreseeable events. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the entity’s business and financial profile:

• — exceptionally good to very good cash and income generation

• — exceptionally good to very good liquidity levels

• — exceptionally low to very low leverage

• — excellent to very strong business profile with proven and very strong management abilities

The entity is also characterised by a high quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC0 would be rated between AAA (Country Category 1) and B (Country Category 7) by accredited CRAs.

Very Good Credit Quality (CC1)

The risk of payment interruption is expected to be low or very low. The obligor/guarantor has a very strong capacity for repayment and this capacity is not likely to be affected by foreseeable events. The obligor/guarantor has a limited or very limited susceptibility to adverse effects of changes in circumstances and economic conditions. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the business and financial profile:

• — very good to good cash and income generation

• — very good to good liquidity levels

• — very low to low leverage

• — very strong business profile with proven management abilities and very strong business profile

The entity is also characterised by a high quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC1 would be rated between AAA (Country Category 1) and B (Country Category 7) by accredited CRAs.

Good to Moderately Good Credit Quality, Above Average (CC2)

The risk of payment interruption is expected to be low. The obligor/guarantor has a good to moderately good capacity for repayment and this capacity is not likely to be affected by foreseeable events. The obligor/guarantor has a limited susceptibility to adverse effects of changes in circumstances and economic conditions. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the business and financial profile:

• — good to moderately good cash and income generation

• — good to moderately good liquidity levels

• — low to moderately low leverage

• — moderately strong business profile with proven management abilities and very strong business profile

The entity is also characterised by a high quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC2 would be rated between A+ (Country Category 1) and B- or worse (Country Category 7) by accredited CRAs.

Moderate Credit Quality, Average (CC3)

The risk of payment interruption is expected to be moderate or moderately low. The obligor/guarantor has a moderate or moderately good capacity for repayment. There is a possibility of credit risk developing as the obligor/guarantor faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely payments. However, business or financial alternatives may be available to allow financial commitments to be met. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the business and financial profile.

• — moderately good to moderate cash and income generation

• — moderately good to moderate liquidity levels

• — moderately low to moderate leverage

• — moderate business profile with proven management abilities

The entity is also characterised by an adequate quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC3 would be rated between BBB+ (Country Category 1) and B- or worse (Country Category 6) by accredited CRAs.

Moderately Weak Credit Quality, Below Average (CC4)

The risk of payment interruption is expected to be moderately weak. The obligor/guarantor has a moderate to moderately weak capacity for repayment. There is a possibility of credit risk developing as the obligor/guarantor faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely payments. However, business or financial alternatives may be available to allow financial commitments to be met. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the business and financial profile:

• — moderate to moderately weak cash and income generation

• — moderate to moderately weak liquidity levels

• — moderate to moderately high leverage

• — moderately weak business profile with limited track record of management abilities

The entity is also characterised by an adequate quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC4 would be rated between BB+ (Country Category 1) and B- or worse (Country Category 5) by accredited CRAs.

Weak Credit Quality (CC5)

The risk of payment interruption is expected to be high to very high. The obligor/guarantor has a moderately weak to weak capacity for repayment. The obligor/guarantor currently has the capacity to meet repayments but a limited margin of safety remains. However, there is a likelihood of developing payment problems as the capacity for continued payment is contingent upon a sustained, favourable business and economic environment. Adverse business, financial, or economic conditions will likely impair capacity or willingness to repay. The credit quality is typically manifested in a combination of some, if not all, of the following characteristics of the business and financial profile:

• — moderately weak to weak to very weak cash and income generation

• — moderately weak to weak liquidity levels

• — moderately high to high leverage

• — weak business profile with limited or no track record of management abilities

The entity is also characterised by a poor quality of financial and ownership disclosure, unless there is a very high likelihood of support from a parent (or sovereign) with a buyer risk classification that is equal to or better than what corresponds to this buyer risk category.

Depending on the classification of the country in which the obligor/guarantor is domiciled, it is likely that an obligor/guarantor classified in buyer risk category CC5 would be rated between BB- (Country Category 1) and B- or worse (Country Category 4) by accredited CRAs.

ANNEX XIII

MARKET BENCHMARKS FOR TRANSACTIONS IN CATEGORY ZERO COUNTRIES

Un-covered Portion of Export Credits or the non-ECA Covered Part of a Syndicated Loan

The price indicated by private banks/institutions with respect to the uncovered portion of the export credit in question (or sometimes as the non-ECA covered part of a syndicated loan) may represent the best match to ECA cover. Pricing on such un-covered portions or non-covered parts should only be used if provided on commercial terms (e.g. this would exclude IFI funded portions).

Name-Specific Corporate Bonds

Corporate bonds reflect name specific credit risk. Care should be used in matching in terms of the ECA contract characteristics, such as term of maturity, and currency denomination, and any credit enhancements. If primary corporate bonds (i.e. all-in yield upon issuance) or secondary corporate bonds (i.e. the option adjusted spread over the appropriate curve, which is usually the relevant currency swap curve) are used, those for the obligor should be used in the first instance; if not available, primary or secondary corporate bonds for comparable borrowers and comparable transactions should be used.

Name-Specific Credit Default Swaps

Credit Default Swaps (CDS) are a form of protection against default. The CDS spread is the amount paid per period by the buyer of the CDS as a percentage of notional principal, and is usually expressed in basis points. The CDS buyer effectively buys insurance against default by making payments to the seller of the CDS for the life of the swap, or until the credit event occurs. A CDS curve for the obligor should be used in the first instance; if not available, CDs curves for comparable borrowers and comparable transactions should be used.

Indexed Credit Default Swaps

An indexed Credit Default Swap is a compilation of registered CDS for an industry sector, or part of it, or for a geographical area. The CDS spreads thus compiled reflects the credit risk of the particular market segment that the index is capturing. Its relevance may be greatest in cases where no name-specific CDS is available or when the market for a name-specific CD is illiquid.

Loan Benchmarks

Primary loan benchmarks (i.e. pricing upon issuance) or secondary loan benchmarks (i.e. the current yield on the loan expected by the financial institution purchasing the loan from another financial institution). All fees must be known for primary loan benchmarks so that the all-in yield can be calculated. If loan benchmarks are used, those for the obligor should be used in the first instance; if not available, those for comparable borrowers and comparable transactions should be used.

Benchmark Market Curves

Benchmark market curves reflect the credit risk of a whole sector or class of buyers. This market information may be relevant when name specific information is not available. In general, the quality of the information inherent to these markets depends upon their liquidity. In any case, one should look for market instruments that provide the closest match in terms of the ECA contract characteristics, such as date, credit rating, term of maturity, and currency denomination.

Weighted Average Cost of Financing Resources (WACFR)

From the buyer’s financial statements it may be possible to gauge the WACFR. Care must be taken when using this method to ensure that the average cost of finance resources of a company reflects the real conditions under which the finance has been provided.

"

[^ntr1-L_2013207EN.01000202-E0001]: As defined in Article 5 of the OECD Convention.

[^ntr2-L_2013207EN.01000202-E0002]: Defined by the World Bank on an annual basis according to per capita GNI.

[^ntr3-L_2013207EN.01000202-E0003]: The requirement for prior notification set out in the third tiret of Article 24 c) shall be discontinued on 31 December 2012.

[^ntr4-L_2013207EN.01000202-E0004]: In the case of a third party guarantee, the applicable country risk classification and buyer risk category must be related to the same entity, i.e. either the obligor or the guarantor.

[^ntr5-L_2013207EN.01000202-E0005]: As defined in Footnote 2.

[^ntr6-L_2013207EN.01000202-E0006]: For administrative purposes, some countries that do not generally receive officially supported export credits may not be classified. For non-classified countries, Participants are free to apply the country risk classification which they deem appropriate.

[^ntr7-L_2013207EN.01000202-E0007]: Rules related to the classification of buyers should be understood to stipulate the most favourable classification that can be applied, e.g. a sovereign buyer may be classified in a less favourable buyer risk classification.

[^ntr8-L_2013207EN.01000202-E0008]: The MPRs associated with the Better than Sovereign (SOV+) buyer risk category are 10 % lower than the MPRs associated with the Sovereign (CC0) buyer risk category.

[^ntr9-L_2013207EN.01000202-E0009]: The Secretariat shall compile and maintain a list of such accredited CRAs.

[^ntr10-L_2013207EN.01000202-E0010]: Where the non-sovereign borrower is rated by more than one accredited CRA, notification is only required where the buyer risk rating is more favourable than the most favourable of the CRA ratings.

[^ntr11-L_2013207EN.01000202-E0011]: With respect to buyer risk, classified multilateral and regional institutions shall be classified in Buyer Risk Category SOV/CC0.

[^ntr12-L_2013207EN.01000202-E0012]: Based on the annual review by the World Bank of its country classification, a per capita Gross National Income (GNI) threshold will be used for the purpose of tied aid eligibility; such threshold is available on the OECD website (www.oecd.org/echanges/xcred).

[^ntr13-L_2013207EN.01000202-E0013]: The requirement for prior notification set out in the third tiret of Article 24 c) shall be discontinued on 31 December 2012.

[^ntr14-L_2013207EN.01003201-E0001]: However, in cases where the buyer of the switchyard is the same as the buyer of the power plant and the contract is concluded in relation to the original switchyard for that power plant, the terms and conditions for the original switchyard shall not be more generous than those for the nuclear power plant.

[^ntr15-L_2013207EN.01003201-E0002]: Article 1 a) 1) refers.

[^ntr16-L_2013207EN.01003201-E0003]: Articles 1 a) 2) to 4) refers.

[^ntr17-L_2013207EN.01004701-E0001]: An explanation shall be provided where the proposed risk-rating of a buyer/borrower exceeds the risk rating of the host sovereign.

[^ntr18-L_2013207EN.01004701-E0002]: For transactions with an export contract value of less than USD 5 million, a Participant not wishing to follow the risk classification procedure set out in Articles 6 to 8 of this Appendix shall apply the risk classification “8” for the buyer/borrower which is the subject of the transaction and shall notify the transaction in accordance with Article 24 a) of this Sector Understanding.

[^ntr19-L_2013207EN.01004701-E0003]: For transactions with an export contract value of less than USD 5 million, a five working-day period shall apply.

[^ntr20-L_2013207EN.01004701-E0004]: Together with information regarding any involvement (provided with due respect for confidentiality duties).

[^ntr21-L_2013207EN.01005701-E0001]: Together with information regarding any involvement (provided with due respect for confidentiality duties).

[^ntr22-L_2013207EN.01005701-E0002]: For the purposes of this questionnaire the “State” is the country that is being proposed for addition to the Cape Town Convention List under Appendix II, Section 2, II of the ASU. Where appropriate, these questions shall also be answered in respect of the laws of the particular “territorial unit” of the State in which the relevant operator of an aircraft (or other relevant body as set out in Article 35 (b) Appendix II) is located and “national law” shall be read as including a reference to the relevant local law.

[^ntr23-L_2013207EN.01005701-E0003]: For the purposes of this questionnaire, 'national law' refers to all national legislation of a State, including but not limited to, the Constitution and its Amendments, any federal, state and district law or regulation.

[^ntr24-L_2013207EN.01005701-E0004]: For example, that (i) treaties prevail over other law as a matter of constitutional or similar framework law in State X, or (ii) legislation is required in State X, and has been enacted expressly setting out the priority of the Cape Town Treaty and /or superseding such other law, or (iii) the Cape Town Treaty or its implementing legislation is (a) more specific than other law (lex specialis derogat legi generali), and/or (b) later in time than such other law (lex posterior derogat legi priori), and as a result of (a) and/or (b) prevails over such other law.

[^ntr25-L_2013207EN.01005701-E0005]: For example, is there any reason why the rights and remedies granted to creditors under the Convention, including those granted under the QDs, would not (a) be recognized as being effective or (b) be sufficient by themselves, to enable such rights and remedies to be validly exercised in the State?

[^ntr26-L_2013207EN.01005701-E0006]: An example of an administrative action for the purposes of this question might be the failure by the State to put in place any procedures or resources to give effect to a provision of the Convention or a Qualifying Declaration. Another example would be the failure by a State to put in place proper procedures in its aircraft registry for recording IDERAs.

[^ntr27-L_2013207EN.01005701-E0007]: Please include in your analysis any precedent / decision relating to the recognition of rights of creditors, including ECAs, when relevant.

[^ntr1-L_2013207EN.01006301-E0001]: Indicate the number of USD 300 million multiples in excess of USD 2 000 million.*

[^ntr28-L_2013207EN.01007101-E0001]: It is understood that the 2012 Recommendation applies equally to projects that are not eligible for these financial terms and conditions.

[^ntr29-L_2013207EN.01007101-E0002]: The maximum repayment term for jack-up rigs used in the installation of wind turbines shall be 12 years.

[^ntr30-L_2013207EN.01007201-E0001]: In the case of a plant fuelled by natural gas, significantly lower carbon intensity is expected to be achieved.

[^ntr31-L_2013207EN.01007201-E0002]: Image omitted; see official source.

[^ntr32-L_2013207EN.01007201-E0003]: Image omitted; see official source.

[^ntr33-L_2013207EN.01007201-E0004]: IPCC Fourth Assessment Report: Climate Change 2007, http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch4s4-3-5.html

[^ntr34-L_2013207EN.01007201-E0005]: The total system efficiency (ηo) of a CHP system is the sum of the net useful power output (WE) and net useful thermal outputs (ΣQTH) divided by the total fuel input (QFUEL), as shown below: Image omitted; see official source

[^ntr2-L_2013207EN.01007701-E0001]: Indicate the number of SDR 40 million multiples in excess of SDR 280 million, e.g. SDR 410 million would be notified as Category XV+3.*

[^ntr35-L_2013207EN.01009301-E0001]:

• a) The financial terms and conditions set out in Articles 2 and 3 d) shall apply to transactions for which a final commitment is issued on or before 31 December 2013.

• b) After 31 December 2013, the financial terms and conditions set out in Articles 2 and 3 d) shall be discontinued unless the Participants agree otherwise.

• c) If discontinued, the provisions of Articles 2 and 3 d) will be replaced by the following:

Article 2 - The maximum repayment term is 14 years, except when official export credit support provided by the Participants comprises more than 35 % of the syndication for a project in a High Income OECD country, the maximum repayment term is ten years.

Article 3 d) - The weighted average life of the repayment period shall not exceed seven-and-a-quarter years, except when official export credit support provided by the Participants comprises more than 35 % of the syndication for a project in a High Income OECD country, the weighted average life of the repayment period shall not exceed five-and-a-quarter years.

[^ntr36-L_2013207EN.01009901-E0001]: Most typically this would be a risk on the central bank or Ministry of Finance. For central government entities other than the finance ministry, due diligence shall be undertaken to affirm that the entity commits the full faith and credit of the sovereign.