Commission Delegated Regulation (EU) 2016/155 of 29 September 2015 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

• (a) Infrastructure for the supply of drinking water to municipalities, including to households and small businesses, i.e. water purification for the purpose of obtaining drinking water and distribution network (including leakage control).

• (b) Wastewater collection and treatment facilities, i.e. collection and treatment of household and industrial wastewater and sewage, including processes for the re-use or recycling of water and the treatment of sludge directly associated with these activities.

• (c) The modernisation of such facilities in cases where the economic life of the plant is likely to be extended by at least the repayment period to be awarded. If this criterion is not met, the provisions of the Arrangement apply.

CHAPTER II

Provisions for export credits

5. MAXIMUM REPAYMENT TERMS

• (a) For officially supported export credits relating to contracts in the sectors listed in Appendix I, and for water projects defined in Article 4 of this Sector Understanding, the maximum repayment term is 18 years.

• (b) For officially supported export credits relating to contracts of a value of at least SDR 10 million in the project classes listed in Appendix II, the maximum repayment term is set out as follows:

• (1) For contracts in Project Class A: 18 years.

• (2) For contracts in Project Class B and Project Class C: 15 years.

• (c) For officially supported export credits relating to contracts of a value of less than SDR 10 million in the project classes listed in Appendix II, the maximum repayment term is set out as follows:

• (1) For Category I countries as defined in Article 11 of the Arrangement, the maximum repayment term is five years, with the possibility of agreeing up to eight-and-a-half years when the procedures for prior notification set out in Article 10 of this Sector Understanding are followed.

• (2) For Category II countries, the maximum repayment term is ten years.

• (3) Notwithstanding sub-paragraphs (1) and (2) above, for non-nuclear power plants as defined in Article 13 of the Arrangement, the maximum repayment term is 12 years.

• (d) For officially supported export credits relating to contracts of a value of at least SDR 10 million for projects supported in conformity with Appendix III, the maximum repayment term is 15 years.

6. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

• (a) The Participants shall apply a profile of repayment of principal and payment of interest as specified in sub-paragraphs (1) or (2) below:

• (1) Repayment of principal shall be made in equal instalments.

• (2) Repayment of principal and payment of interest combined shall be made in equal instalments.

• (b) Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.

• (c) On an exceptional and duly justified basis, official support may be provided on terms other than those set out in paragraphs (a) and (b) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:

• (1) No single repayment of principal or series of principal payments within a six-month period shall exceed 25 % of the principal sum of the credit.

• (2) Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 18 months after the starting point of credit and no less than 2 % of the principal sum of the credit shall have been repaid 18 months after the starting point of credit.

• (3) Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.

• (4) The maximum weighted average life of the repayment period shall not exceed 60 % of the maximum available tenor.

• (d) Interest due after the starting point of credit shall not be capitalised.

7. MINIMUM INTEREST RATES

A Participant providing official financing support for fixed rates loans shall apply the following minimum interest rates:

Repayment term (years)	Standard minimum interest rates	Standard minimum interest rates	Minimum interest rates for projects with long construction periods, i.e.: — New large hydro-power projects — Appendix II Project Class A — Appendix III Adaptation Projects	Minimum interest rates for projects with long construction periods, i.e.: — New large hydro-power projects — Appendix II Project Class A — Appendix III Adaptation Projects
Repayment term (years)	Government bonds (years)	Margin (bps)	Government bonds (years)	Margin (bps)
< 11	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement
11 to 12	7	100	7	100
13	7	120	8	120
14	8	120	9	120
15	8	120	9	120
16	9	120	10	125
17	9	120	10	130
18	10	120	10	130

8. ELIGIBLE CURRENCIES

The currencies that are eligible for official financing support are those which are fully convertible and for which data are available to construct the minimum interest rates mentioned in Article 7 of this Sector Understanding, and in Article 20 of the Arrangement for repayment terms less than 11 years.

9. LOCAL COSTS

• (a) For officially supported export credits relating to contracts of a value of at least SDR 10 million, official support provided for local costs shall not exceed 30 % of the export contract value.

• (b) For officially supported export credits relating to contracts of a value of less than SDR 10 million:

• (1) For the sectors listed in Appendix I of this Sector Understanding, official support provided for local costs shall not exceed 45 % of the export contract value.

• (2) For the sectors listed in Appendix II and for water projects defined in Article 4 of this Sector Understanding, official support provided for local costs shall not exceed 30 % of the export contract value.

• (c) Where official support for local cost exceeds 15 % of the export contract value, such official support shall be subject to prior notification, pursuant to Article 10 of this Sector Understanding, specifying the nature of the local costs being supported.

CHAPTER III

Procedures

10. PRIOR NOTIFICATION

• (a) A Participant intending to provide support in accordance with the provisions of this Sector Understanding, shall give prior notification at least ten calendar days before issuing any commitment, in accordance with:

• (1) Article 48 of the Arrangement if the support is extended pursuant to Article 1, 2 or 4 of this Sector Understanding;

• (2) Article 47 of the Arrangement if the support is extended pursuant to Article 3 of this Sector Understanding.

• (b) For projects falling in the Project Classes listed in Appendix II of this Sector Understanding, such notifications shall include an enhanced description of the project in order to demonstrate how the project complies with the criteria for support, as set out in Article 2(b) of this Sector Understanding.

• (c) For projects supported in conformity with Appendix III of this Sector Understanding, such notification shall include:

• (1) An enhanced description of the project in order to demonstrate how the project complies with the criteria for support, as set out in Article 3(b) of this Sector Understanding, and

• (2) Access to the outcome of the independent third-party review required in Appendix III.

• (d) Notwithstanding paragraph (a)(1) above, if the notifying Participant intends to provide support with a repayment term in excess of 15 years and/or in accordance with Article 6(c) of this Sector Understanding, it shall give prior notification at least ten calendar days before issuing any commitment in accordance with Article 47 of the Arrangement.

• (e) A Participant shall inform all other Participants of its final decision following a discussion, to facilitate the review of the body of experience.

CHAPTER IV

Monitoring and review

11. FUTURE WORK

The Participants agree to examine the following issues:

• (a) Term-adjusted risk-premia.

• (b) Conditions for low emission/high energy efficiency fossil fuel power plants including definition of CCS-readiness.

• (c) Net zero energy buildings.

• (d) Smart grids.

• (e) Fuel cell projects.

12. MONITORING AND REVIEW

• (a) The Secretariat shall report annually on the implementation of this Sector Understanding.

• (b) The Participants shall regularly review the scope and other provisions of this Sector Understanding and at the latest by the end of 2017.

• (c) Appendix II of this Sector Understanding shall be reviewed at regular intervals, including upon the request of a Participant, with the view to assessing whether any Project Class and/or Type should be added to, or removed from, or whether any thresholds should be changed in, that Appendix. Proposals for new Project Classes and/or Types shall be supported by information on how projects within such a Class/Type should fulfil the criteria set out in Article 2(b) and shall follow the methodology set out in Appendix IV of this Sector Understanding.

• (d) The Participants shall undertake a review of Appendix III of this Sector Understanding no later than by 30 June 2018, with a view to assessing the international initiatives related to adaptation, market conditions, and the body of experience developed from the notification process to determine if the definitions, project criteria, terms and conditions should be continued and or amended.

• (e) After 31 December 2018, the terms and conditions related to Appendix III shall be discontinued unless the Participants agree otherwise.

‘Appendix I

Renewable energies sectors

The following renewable energies sectors shall be eligible for the financial terms and conditions set out in this Sector Understanding provided that their impacts are addressed in accordance with the 2012 Recommendation on Common Approaches on Officially Supported Export Credits and Environmental and Social Due Diligence (^{15 18 22 1 29 31 36 2 37}) (as subsequently amended by Members of the OECD Working Group on Export Credits and Credit Guarantee (ECG) and adopted by the OECD Council):

• (a) Wind energy (^{16 19 23 30 32}).

• (b) Geothermal energy.

• (c) Tidal and tidal stream power.

• (d) Wave power.

• (e) Osmotic power.

• (f) Solar photovoltaic power.

• (g) Solar thermal energy.

• (h) Ocean thermal energy.

• (i) Bio-energy: all sustainable landfill gas, sewage treatment plant gas, biogas energy or fuel derived from biomass energy installations. “Biomass” shall mean the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste.

• (j) Hydro power.

• (k) Energy efficiency in Renewable Energies projects.

‘Appendix II

Climate change mitigation sectors

PROJECT CLASS	DEFINITION	RATIONALE	STANDARDS USED	REPAYMENT TERMS
Project Class A:   Carbon Capture and Storage	Project Class A:   Carbon Capture and Storage	Project Class A:   Carbon Capture and Storage	Project Class A:   Carbon Capture and Storage	Project Class A:   Carbon Capture and Storage
TYPE 1: Fossil Fuel Power Plants with Operational Carbon Capture and Storage (CCS)	A process consisting of the separation of CO2 stream from the emissions produced by fossil fuel generation sources, transport to a storage site, for the purposes of environmentally safe and permanent geological storage of CO2.	To achieve low carbon emission levels for fossil fuel power sources.	Carbon intensity shall achieve a level equal to or less than 350 metric ton CO2 per GWh vented to atmosphere(15 18 22 1 29 31 36 2 37); Or In the case of all projects, a capture and storage rate that would reduce the plant's carbon emissions by 65 % or greater; Or The capture rate has to be at least 85 % of CO2 emitted by the equipment included in the application for officially supported export credits. The 85 % is to apply at normal operating conditions.	18 years
TYPE 2: CCS Projects as such	A process consisting of the separation of CO2 from industrial or energy generation sources, transport to a storage site, for the purposes of environmentally safe and permanent geological storage of CO2.	To significantly reduce carbon emissions from existing sources.	In the case of all projects, a capture and storage rate that would reduce the industrial or energy generation carbon emissions by 65 % or greater; or The capture rate has to be at least 85 % of CO2 emitted by the equipment included in the application for officially supported export credits. The 85 % is to apply at normal operating conditions.	18 years
Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution
TYPE 1: Waste to Energy	Unit dedicated to generating energy by thermal treatment (including gasification) of mixed stream solid waste.	To offset GHG emissions from the use of conventional power and by reducing future GHG such as methane that would normally emanate from the waste.	In the case of a steam cycle, a boiler (or steam generator) energy conversion efficiency of at least 75 % based on low heating value (LHV)(16 19 23 30 32). In the case of gasification, a gasifier efficiency of at least 65 % LHV(17 20 24 33).	15 years
TYPE 2: Hybrid Power Plants	A power plant that generates electric power from both a renewable energy source and a fossil fuel source.	To meet the requirement of plant availability, a fossil fuel generating source is required for those periods when power from the renewable energy source is not available or sufficient. The fossil fuel source enables the usage of renewable energy in the hybrid plant, thereby achieving a significant carbon reduction compared with standard fossil fuel plant.	Model 1: Two separate generation sources: one Renewable Energy and one fossil fuel. Project shall be designed such that at least 50 % of its projected total annual energy output originates from the plant's renewable energy source. Model 2: Single generation source using the combination of renewable and fossil fuel. The project shall be designed such that at least 75 % of the useful energy produced is derived from the renewable source.	15 years
Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency
TYPE 1: Combined Heat & Power projects	Simultaneous generation of multiple forms of energy (electrical, mechanical and thermal) in a single integrated system. Output of the CHP plant shall include electric or mechanical energy and heat for commercial industrial and/or residential use.	Up to two thirds of the primary energy used to generate electricity in conventional thermal power plants is lost in the form of heat. Combined heat and power (CHP) generation can therefore be an effective GHG mitigation option. CHP is possible with all heat machines and fuels (including biomass and solar thermal) from a few kW-rated to 1 000  MW steam-condensing power plants(21 25 34).	Overall efficiency of at least 75 % based on low heating value (LHV)(26 35).	15 years
TYPE 2: District heating and/or cooling	Network which carries/distributes thermal energy from energy producing unit to end use.	To improve the efficiency of heating of districts by building piping networks for steam and/or hot water with substantial thermal efficiency, both by minimising losses of piping and converters, and by increasing the amount of utilisation of waste heat. District cooling is an integrative technology that can make significant contributions to reducing emissions of carbon dioxide and air pollution and to increasing energy security e.g. via substitution of individual air-conditioners.	The district piping thermal conductivity shall be less than 80 % of the relevant thermal conductivity required by the European standard EN253:2009 (to be reviewed when this standard is updated).	15 years

‘Appendix III

Eligibility criteria for climate change adaptation projects

A project is eligible for the financial terms and conditions set out in this Sector Understanding if:

• (a) Climate change adaptation is the principal objective of the project, and it is explicitly indicated and explained as such in the project plan and supporting documents, as being fundamental to the design of the project.

• (b) The project's proposal shall include an analysis and identification of specific and relevant climate change-related risks and vulnerabilities, and how the proposed measures or technologies will directly address them.

• (c) There is an independent third-party review conducted on the project, either separately or as an integral part of the project plan which is made publicly available, such as published on the website of the national authority. The review shall evaluate the specific and relevant climate change-related risks and vulnerabilities and how the proposed measures contained within the project will directly address them.

• (d) The useful life of the project exceeds 15 years.

‘Appendix IV

Methodology to be used when determining the eligibility of sectors relating to Article 2 of this Sector Understanding

When proposing that Project Class or Type be added to Appendix II of this Sector Understanding, Participants shall provide a detailed description of the proposed Project Class or Type and information on how such projects fulfil the criteria set out in Article 2(b) of this Sector Understanding; such information shall include:

• (a) An evaluation of the direct contribution of the Project Class or Type to climate change mitigation, including a comparison of the sector performance, based on measurable data regarding carbon emissions or CO2 equivalent and/or in high energy efficiency, with conventional and in-use newer technological approaches; this comparison shall, in all cases, be based on quantitative measures, such as a decrease in emissions per unit produced.

• (b) A description of the technical and performance standards of the Project Class or Type proposed sector, including information on any relevant, existing Best Available Techniques (BAT); if appropriate, this description shall explain how the technology is an improvement on the existing BAT.

• (c) A description of the financial barriers in the proposed Project Class or Type, including any financial needs and market conditions, and identify the provisions under this Sector Understanding that are expected to enable such projects to proceed.

‘Appendix V

List of definitions

Best Available Techniques: as per the definition of EU Directive 96/61/EC (Article 2.(1), “Best Available Techniques” shall mean the most effective and advanced stage in the development of activities and their methods of operation which indicate the practical suitability of particular techniques for providing in principle the basis for emission limit values designed to prevent and, where that is not practicable, generally to reduce emissions and the impact on the environment as a whole:

• (a) “techniques” shall include both the technology used and the way in which the installation is designed, built, maintained, operated and decommissioned.

• (b) “available” techniques shall mean those developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages, whether or not the techniques are used or produced inside the Member State in question, as long as they are reasonably accessible to the operator.

• (c) “best” shall mean most effective in achieving a high general level of protection of the environment as a whole.

Greenhouse Gases: greenhouse gases are defined to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

Large Hydro Power Project: as per the definition of the International Commission on Large Dams (ICOLD). ICOLD defines a large dam as a dam with a height of 15 m or more from the foundation. Dams that are between 5 and 15 m high and have a reservoir volume of more than 3 million m³ are also classified as large dams.

‘ANNEX V

SECTOR UNDERSTANDING ON EXPORT CREDITS FOR RAIL INFRASTRUCTURE

The Participants to this Sector Understanding agree that the financial terms and conditions of the Sector Understanding, which complements the Arrangement, shall be implemented in a way that is consistent with the Purpose of the Arrangement.

CHAPTER I

Scope of the Sector Understanding

1. SCOPE OF APPLICATION

This Sector Understanding sets out the financial terms and conditions that apply to officially supported export credits relating to contracts for rail infrastructure assets essential to operating trains, including rail control (e.g. signalling and other rail IT), electrification, tracks, rolling stock, and related construction work.

CHAPTER II

Provisions for export credits

2. MAXIMUM REPAYMENT TERMS

• (a) For officially supported export credits relating to contracts included within the scope of application of this Sector Understanding, the maximum repayment term is set out as follows:

• (1) For contracts in Category I countries (as defined in Article 11 of the Arrangement): 12 years.

• (2) For contacts in Category II countries (as defined in Article 11 of the Arrangement): 14 years.

• (b) To qualify for the repayment terms set out in paragraph (a) above, the following conditions shall apply:

• (1) The transaction shall involve an overall contract value of more than SDR 10 million; and

• (2) The repayment terms shall not exceed the useful life of the rail infrastructure asset financed; and

• (3) For transactions in Category I countries, the transaction involves/is characterised by:

• — Participation in a loan syndication with private financial institutions that do not benefit from Official Export Credit Support, whereby:

• (i) The Participant is a minority partner with pari passu status throughout the life of the loan; and

• (ii) Official export credit support provided by the Participants comprises less than 50 % of the syndication.

• — Premium rates for any official support that do not undercut available private market financing and that are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

• (c) A Participant may request a waiver of the condition set out in paragraph (b)(3) above, through use of a Common Line, in accordance with Articles 58 to 63 of the Arrangement. In such cases, the Participant proposing the Common Line shall provide, either in the proposed Common Line or in each individual transaction thereafter notified, a comprehensive explanation for the support, including specific data on pricing, and a rationale for the need to waive the provisions of paragraph (b)(3) above.

3. REPAYMENT OF PRINCIPAL AND INTEREST

The repayment of principal and interest shall be provided according to Article 14 of the Arrangement except that the maximum weighted average life of the repayment period under paragraph (d)(4) of that Article shall be:

• (a) For transaction in a Category I countries, six-and-a-quarter years; and

• (b) For transaction in a Category II countries, seven-and-a-quarter years.

4. MINIMUM FIXED INTEREST RATES

A Participant providing official financing support for fixed rate loans shall apply, as minimum interest rates:

• (a) For repayment terms of up to and including 12 years, the relevant Commercial Interest Reference Rates (CIRRs) constructed in accordance with Article 20 of the Arrangement.

• (b) For repayment terms in excess of 12 years, the relevant Commercial Interest Reference Rates (CIRRs) constructed in accordance with Article 20 of the Arrangement, to which a surcharge of 20 basis points shall be added for all currencies.

CHAPTER III

Procedures

5. PRIOR NOTIFICATION

• (a) A Participant shall give prior notification in accordance with Article 47 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support for a transaction in a Category I country. Such notifications shall include a comprehensive explanation for the official support, including specific data on pricing.

• (b) A Participant shall give prior notification in accordance with Article 48 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support for:

• (1) A transaction in a Category II country; or

• (2) A transaction supported pursuant to a Common Line set out in accordance with Article 2(c) of this Sector Understanding. Such prior notification may be made concurrently with, and subject to the approval of, the Common Line proposal.

6. VALIDITY OF COMMON LINES

Notwithstanding the provisions of Article 63(a) of the Arrangement, all agreed Common Lines shall cease to be valid on 31 December 2018, unless the Participants agree to the extension of this Sector Understanding in accordance with Article 7(d) of this Sector Understanding.

CHAPTER IV

Monitoring and review

7. MONITORING AND REVIEW

• (a) The Secretariat shall report annually on the implementation of this Sector Understanding.

• (b) After 31 December 2017, and subject to paragraph (c) below, the less than 50 % syndication requirement set out in sub-paragraph ii) of the first tiret of Article 2(b)(3) of this Sector Understanding shall be replaced by a maximum 35 % syndication requirement unless the Participants agree otherwise.

• (c) The Participants shall undertake a review of this Sector Understanding by no later than 30 June 2017 with a view to assessing the market conditions and other factors to determine whether the terms and conditions should be continued and or amended.

• (d) After 31 December 2017, the terms and conditions of this Sector Understanding shall be discontinued unless the Participants agree otherwise.

‘ANNEX VI

TERMS AND CONDITIONS APPLICABLE TO PROJECT FINANCE TRANSACTIONS

CHAPTER I

General provisions

1. SCOPE OF APPLICATION

• (a) This Annex sets out terms and conditions that Participants may support for project finance transactions that meet the eligibility criteria set out in Appendix 1.

• (b) Where no corresponding provision exists in this Annex, the terms of the Arrangement shall apply.

CHAPTER II

Financial terms and conditions

(^{15 18 22 1 29 31 36 2 37})

2. MAXIMUM REPAYMENT TERMS

The maximum repayment term is 14 years.

3. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

The principal sum of an export credit may be repaid in unequal instalments, and principal and interest may be paid in less frequent than semi-annual instalments, as long as the following conditions are met:

• (a) No single repayment of principal or series of principal payments within a six-month period shall exceed 25 % of the principal sum of the credit.

• (b) The first repayment of principal shall be made no later than 24 months after the starting point of credit and no less than 2 % of the principal sum of the credit shall have been repaid 24 months after the starting point of credit.

• (c) Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.

• (d) The weighted average life of the repayment period shall not exceed seven-and-a-quarter years.

• (e) The Participant shall give prior notification according to Article 5 of this Annex.

4. MINIMUM FIXED INTEREST RATES

Where Participants are providing official financing support for fixed rate loans:

• (a) For repayment terms of up to and including 12 years, Participants shall apply the relevant Commercial Interest Reference Rates (CIRRs) constructed in Accordance with Article 20 of the Arrangement.

• (b) For repayment terms in excess of 12 years, a surcharge of 20 basis points on the CIRR shall apply for all currencies.

CHAPTER III

Procedures

5. PRIOR NOTIFICATION FOR PROJECT FINANCE TRANSACTIONS

A Participant shall notify all Participants of the intent to provide support according to the terms and conditions of this Annex at least ten calendar days before issuing any commitment. The notification shall be provided in accordance with Annex VII of the Arrangement. If any Participant requests an explanation in respect of the terms and conditions being supported during this period, the notifying Participant shall wait an additional ten calendar days before issuing any commitment.

‘Appendix 1

Eligibility criteria for project finance transactions

I. BASIC CRITERIA

The transaction involves/is characterised by:

• (a) The financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan.

• (b) Financing of export transactions with an independent (legally and economically) project company, e.g. special purpose company, in respect of investment projects generating their own revenues.

• (c) Appropriate risk-sharing among the partners of the project, e.g. private or creditworthy public shareholders, exporters, creditors, off-takers, including adequate equity.

• (d) Project cash flow sufficient during the entire repayment period to cover operating costs and debt service for outside funds.

• (e) Priority deduction from project revenues of operating costs and debt service.

• (f) A non-sovereign buyer/borrower with no sovereign repayment guarantee (not including performance guarantees, e.g. off-take arrangements).

• (g) Asset-based securities for proceeds/assets of the project, e.g. assignments, pledges, proceed accounts;

• (h) Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project after completion.

II.   ADDITIONAL CRITERIA FOR PROJECT FINANCE TRANSACTIONS IN HIGH INCOME OECD COUNTRIES

The transaction involves/is characterised by:

• (a) Participation in a loan syndication with private financial institutions that do not benefit from Official Export Credit Support, whereby:

• (1) The Participant is a minority partner with pari passu status throughout the life of the loan and;

• (2) Official export credit support provided by the Participants comprises less than 50 % of the syndication.

• (b) Premium rates for any official support that do not undercut available private market financing and that are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

‘ANNEX VII

INFORMATION TO BE PROVIDED FOR NOTIFICATIONS

The information listed in Section I below shall be provided for all notifications made under the Arrangement (including its Annexes). In addition, the information specified in Section II shall be provided, as appropriate, in relation to the specific type of notification being made.

I. INFORMATION TO BE PROVIDED FOR ALL NOTIFICATIONS

(a) Basic Information

• 1. Notifying country

• 1. Notification date

• 1. Name of notifying authority/agency

• 1. Reference number

• 1. Original notification or revision to previous notification (revision number as relevant)

• 1. Tranche number (if relevant)

• 1. Reference number of credit line (if relevant)

• 1. Arrangement Article(s) under which the notification is being made

• 1. Reference number of notification being matched (if relevant)

• 1. Description of support being matched (if relevant)

• 1. Destination Country

(b) Buyer/Borrower/Guarantor Information

• 1. Buyer Country

• 1. Buyer Name

• 1. Buyer Location

• 1. Buyer Status

• 1. Borrower Country (if different from the buyer)

• 1. Borrower Name (if different from the buyer)

• 1. Borrower Location (if different from the buyer)

• 1. Borrower Status (if different from the buyer)

• 1. Guarantor Country (if relevant)

• 1. Guarantor Name (if relevant)

• 1. Guarantor Location (if relevant)

• 1. Guarantor Status (if relevant)

(c) Information on Goods and/or Services Being Exported and the Project

• 1. Description of the goods and/or services being exported

• 1. Description of the project (if relevant)

• 1. Location of the project (if relevant)

• 1. Tender closing date (if relevant)

• 1. Expiry date of credit line (if relevant)

• 1. Value of contract(s) supported, either the actual value (for all lines of credit and project finance transactions or for any individual transaction on a voluntary basis) or according to the following scale in millions of SDRs:

Category	From	To
I:	0	1
II:	1	2
III:	2	3
IV:	3	5
V:	5	7
VI:	7	10
VII:	10	20
VIII:	20	40
IX:	40	80
X:	80	120
XI:	120	160
XII:	160	200
XIII:	200	240
XIV:	240	280
XV:	280	(15 18 22 1 29 31 36 2 37)

• 1. Currency of contract(s)

(d) Financial Terms and Conditions of the Official Export Credit Support

• 1. Credit value; the actual value for notifications involving lines of credit and project finance transactions or for any individual transaction on a voluntary basis, or according to the SDR scale

• 1. Currency of credit

• 1. Down payment (percentage of the total value of the contracts supported)

• 1. Local Costs (percentage of the total value of the contracts supported)

• 1. Starting point of credit and reference to the applicable sub-paragraph of Article 10

• 1. Length of the repayment period

• 1. Interest rate base

• 1. Interest rate or margin

II.   ADDITIONAL INFORMATION TO BE PROVIDED, AS APPROPRIATE, FOR NOTIFICATIONS MADE IN RELATION TO SPECIFIC PROVISIONS

(a) Arrangement, Article 14(d)(5)

• 1. Repayment profile

• 1. Repayment frequency

• 1. Length of time between the starting point of credit and the first repayment of principal

• 1. Amount of interest capitalised before the starting point of credit

• 1. Weighted average life of the repayment period

• 1. Explanation of the reason for not providing support according to Article 14 paragraphs (a) through (c)

(b) Arrangement, Articles 24, 27, 30 and 31

• 1. Country risk classification of the obligor's country

• 1. Selected buyer risk category of the obligor

• 1. Length of the disbursement period

• 1. Percentage of cover for political (country) risk

• 1. Percentage of cover for commercial (buyer) risk

• 1. Quality of cover (i.e. below standard, standard, above standard)

• 1. MPR based on the country risk classification of the obligor's country absent any third party guarantee, involvement of a multilateral/regional institution,risk mitigation and/or buyer risk enhancements

• 1. Applicable MPR

• 1. Actual premium rate charged (expressed in MPR format as a percentage of the principal)

(c) Arrangement, Article 24(c) third tiret

• 1. Benchmark(s) applied (see Annex IX).

(d) Arrangement, Article 24(e) first tiret

• 1. Country risk classification of the guarantor's country

• 1. Selected buyer risk classification of the guarantor

• 1. Confirmation that all of the criteria listed in Annex X have been met.

• 1. Percentage of the total amount at risk (i.e. principal and interest) that is covered by the guarantee (i.e. total or partial amount)

• 1. Indication as to whether any financial relationship exists between the guarantor and the obligor

• 1. In the case that there is a relationship between the guarantor and the obligor:

• — The type of relationship (e.g. parent-subsidiary, subsidiary-parent, common ownership)

• — Confirmation that the guarantor is legally and financially independent and can fulfil the obligor's payment obligation

• — Confirmation that the guarantor would not be affected by events, regulations or sovereign intervention in the obligor's country

(e) Arrangement, Article 27(e)

• 1. Selected buyer risk category of the obligor

• 1. Accredited CRA foreign currency rating(s)

• 1. Rationale for buyer risk category better than accredited CRA rating

(f) Arrangement, Article 30

• 1. Country risk mitigation technique used

• 1. Confirmation that the criteria listed in Annex XII have been met

• 1. For Technique 1, the applicable country risk classification resulting from the use of the technique.

• 1. For Technique 2:

• — the local currency used

• — the value of the LCF applied

(g) Arrangement, Article 31

• 1. The BRCE(s) applied

• 1. The CEF applied for each credit enhancement

• 1. The total CEF to be applied

(h) Arrangement, Articles 49 and 50

• 1. Form of tied aid (i.e. development aid or premixed credit or associated finance)

• 1. Overall concessionality level of the tied and partially untied aid financing calculated in accordance with Article 40

• 1. DDR used for concessionality calculation

• 1. Treatment of cash payments in the calculation of the concessionality level

• 1. Restrictions on use of credit lines

(i) Annex I, Article 5(e)

• 1. Indication of:

• — The date of the first payment of interest, if later than six months after the starting point of credit

• — The frequency of payment of interest, if less frequent than every six months

(j) Annex II, Article 8

• 1. Enhanced description of the export contract, i.e. new nuclear power station, modernisation of an existing nuclear power plant, supply of nuclear fuel and enrichment, or provision of spent fuel management.

• 1. Repayment of principal and payment of interest according to: Article 3(a)(1), Article 3(a)(2) or Article 3(c) of Annex II.

• 1. Where official support is provided in accordance with Article 3(c) of Annex II, please provide:

• — Repayment profile

• — Repayment frequency

• — Length of time between the starting point of credit and the first repayment of principal

• — Amount of interest capitalised before the starting point of credit

• — Weighted average life of the repayment period

• — Explanation of the reason for not providing support in accordance with Articles 3(a) and (b) of Annex II.

• 1. Minimum interest rate applied in accordance with Article 4 of Annex II.

(k) Annex IV, Article 10

• 1. Enhanced description of the project:

• — New renewable energies and water plant, or modernisation of an existing renewable energies and water plant, including the specific sector as listed in Appendix I of Annex IV, or

• — If a hydro-power project, whether a new large hydro-power project (as defined in Appendix IV of Annex IV), or

• — For projects falling in the Project Classes listed in Appendix II of Annex IV, a demonstration of how the project complies with the criteria for support, as set out in Article 2(b) of Annex IV, or

• — For projects supported in conformity with Appendix III of Annex IV:

• — An enhanced description of the project in order to demonstrate how the project complies with the criteria for support, as set out in Article 3(b) or (c) respectively of Annex IV, and

• — Access to the outcome of the independent third-party review required in Appendix III of Annex IV.

• 1. Repayment profile of principal and payment of interest according to: Article 6(a)(1), Article 6(a)(2) or Article 6(c) of Annex IV.

• 1. Where official support is provided in accordance with Article 6(c) of Annex IV, please provide:

• — Repayment profile

• — Repayment frequency

• — Length of time between the starting point of credit and the first repayment of principal

• — Amount of interest capitalised before the starting point of credit

• — Weighted average life of the repayment period

• — Explanation of the reason for not providing support in accordance with Articles 6(a) and (b) of Annex IV.

• 1. Minimum interest rate applied in accordance with Article 7 of Annex IV.

(l) Annex V, Article 5

• 1. Comprehensive explanation for the terms and conditions of the official support provided, including:

• — Explanation of why the Rail Infrastructure terms and conditions are being provided

• — How the repayment terms offered do not exceed the useful life of the rail infrastructure financed

• 1. For transactions in Category I countries:

• — Total debt syndication amount for the project, including official and private lenders

• — Total amount of the debt syndication from private lenders

• — Percentage of the debt syndication provided by the Participants

• — Confirmation that the Participant is involved in a loan syndication with private financial institutions that do not benefit from official export credit support, whereby (i) the Participant is a minority partner with pari passu status throughout the life of the loan and (ii) official export credit support provided by the Participants comprises less than 50 % of the syndication

• — Specific data on pricing to explain how premium rates charged for official support do not undercut available private market financing and are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

(m) Annex VI, Article 5

• 1. Explanation of why project finance terms are being provided

• 1. Contract value in relation to turnkey contract, portion of sub-contracts, etc.

• 1. Enhanced project description

• 1. Type of cover provided prior to the starting point of credit

• 1. Percentage of cover for political risk prior to the starting point of credit

• 1. Percentage of cover for commercial risk prior to the starting point of credit

• 1. Type of cover provided after the starting point of credit

• 1. Percentage of cover for political risk after the starting point of credit

• 1. Percentage of cover for commercial risk after the starting point of credit

• 1. Length of the construction period (if applicable)

• 1. Length of the disbursement period

• 1. Weighted average life of the repayment period

• 1. Repayment profile

• 1. Repayment frequency

• 1. Length of time between the starting point of credit and the first repayment of principal

• 1. Percentage of principal repaid by the mid-point of credit

• 1. Amount of interest capitalised before the starting point of credit

• 1. Other fees received by the ECA, e.g. commitment fees (optional, except in the case of transactions with buyers in High Income OECD Countries)

• 1. Premium rate (optional, except in the case of projects in High Income OECD Countries)

• 1. Confirmation (and explanation as necessary) that the transaction involves/is characterised by:

• — The financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan.

• — Financing of export transactions with an independent (legally and economically) project company, e.g. special purpose company, in respect of investment projects generating their own revenues.

• — Appropriate risk-sharing among the partners of the project, e.g. private or creditworthy public shareholders, exporters, creditors, off-takers, including adequate equity.

• — Project cash flow sufficient during the entire repayment period to cover operating costs and debt service for outside funds.

• — Priority deduction from project revenues of operating costs and debt service.

• — A non-sovereign buyer/borrower with no sovereign repayment guarantee

• — Asset-based securities for proceeds/assets of the project, e.g. assignments, pledges, proceed accounts;

• — Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project after completion

(n) Annex VI, Article 5, for projects in High Income OECD Countries

• 1. Total debt syndication amount for the project, including official and private lenders

• 1. Total amount of the debt syndication from private lenders

• 1. Percentage of the debt syndication provided by the Participants

• 1. Confirmation that:

• — In respect of participation in a loan syndication with private financial institutions that do not benefit from official export credit support, the Participant is a minority partner with pari passu status throughout the life of the loan.

• — The premium rate reported under item (m)19 above does not undercut available private market financing and is commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

‘ANNEX VIII

CALCULATION OF THE MINIMUM PREMIUM RATES

MPR Formula

The formula for calculating the applicable MPR for an export credit involving an obligor/guarantor in a country classified in Country Risk Categories 1-7 is:

MPR = {[(ai × HOR + bi) × max (PCC, PCP)/0,95 ] × (1 – LCF) + [cin × PCC/0,95 × HOR × (1 – CEF)]} × QPFi × PCFi × BTSF

where:

—   ai= country risk coefficient in country risk category i (i = 1-7)

—   cin= buyer risk coefficient for buyer category n (n = SOV+, SOV/CCO, CC1-CC5) in country risk category i (i = 1-7)

—   bi= constant for country category risk category i (i = 1-7)

—   HOR= horizon of risk

—   PCC= commercial (buyer) risk percentage of cover

—   PCP= political (country) risk percentage of cover

—   CEF= credit enhancements factor

—   QPFi= quality of product factor in country risk category i (i = 1-7)

—   PCFi= percentage of cover factor in country risk category i (i = 1-7)

—   BTSF= better than sovereign factor

—   LCF= local currency factor

Applicable Country Risk Classification

The applicable country risk classification is determined according to Article 24(e) of the Arrangement, which in turn determines the country risk coefficient (ai) and constant (bi) that are obtained from the following table:

	1	2	3	4	5	6	7
a	0,090	0,200	0,350	0,550	0,740	0,900	1,100
b	0,350	0,350	0,350	0,350	0,750	1,200	1,800

Selection of the Appropriate Buyer Risk Category

The appropriate buyer risk category is selected from the following table, which provides the combinations of country and buyer risk categories that have been established and the agreed concordance between buyer risk categories CC1-CC5 and the classifications of accredited CRAs. Qualitative descriptions of each buyer risk category (SOV+ to CC5) have been established to facilitate the classification of obligors (and guarantors) and are provided in Annex XI.

Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
1	2	3	4	5	6	7
SOV+	SOV+	SOV+	SOV+	SOV+	SOV+	SOV+
SOV/CC0	SOV/CC0	SOV/CC0	SOV/CC0	SOV/CC0	SOV/CC0	SOV/CC0
CC1 AAA to AA-	CC1 A+ to A-	CC1 BBB+ to BBB-	CC1 BB+ to BB	CC1 BB-	CC1 B+	CC1 B
CC2 A+ to A-	CC2 BBB+ to BBB-	CC2 BB+ to BB	CC2 BB-	CC2 B+	CC2 B	CC2 B- or worse
CC3 BBB+ to BBB-	CC3 BB+ to BB	CC3 BB-	CC3 B+	CC3 B	CC3 B- or worse
CC4 BB+ to BB	CC4 BB-	CC4 B+	CC4 B	CC4 B- or worse
CC5 BB- or worse	CC5 B+ or worse	CC5 B or worse	CC5 B- or worse

The selected buyer risk category, in combination with the applicable country risk category determines the buyer risk coefficient (cin) that is obtained from the following table:

Buyer Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
Buyer Risk Category	1	2	3	4	5	6	7
SOV+	0,000	0,000	0,000	0,000	0,000	0,000	0,000
SOV/CC0	0,000	0,000	0,000	0,000	0,000	0,000	0,000
CC1	0,110	0,120	0,110	0,100	0,100	0,100	0,125
CC2	0,200	0,212	0,223	0,234	0,246	0,258	0,271
CC3	0,270	0,320	0,320	0,350	0,380	0,480	n/a
CC4	0,405	0,459	0,495	0,540	0,621	n/a	n/a
CC5	0,630	0,675	0,720	0,810	n/a	n/a	n/a

Horizon of Risk (HOR)

The Horizon of Risk (HOR) is calculated as follows:

For standard repayment profiles (i.e. equal semi-annual repayments of principal): HOR = (length of the disbursement period × 0,5) + the length of the repayment period

For non-standard repayment profiles: HOR = (length of the disbursement period × 0,5) + (weighted average life of the repayment period – 0,25)/0,5 In the above formulas, the unit of measurement for time is years.

Percentage of Cover for Commercial (Buyer) Risk (PCC) and Political (Country) Risk (PCP)

The Percentages of Cover (PCC and PCP) expressed as a decimal value (i.e. 95 % is expressed as 0,95) in the MPR formula.

Buyer Risk Credit Enhancements

The value of the credit enhancement factor (CEF) is 0 for any transaction that is not subject to any buyer risk credit enhancements. The value of the CEF for transactions that are subject to buyer risk credit enhancements is determined according to Annex XII, subject to the restrictions set out in Article 31(c) of the Arrangement and may not exceed 0,35.

Quality of Product Factor (QPF)

The QPF is obtained from the following table:

Product Quality	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
Product Quality	1	2	3	4	5	6	7
Below Standard	0,9965	0,9935	0,9850	0,9825	0,9825	0,9800	0,9800
Standard	1,0000	1,0000	1,0000	1,0000	1,0000	1,0000	1,0000
Above Standard	1,0035	1,0065	1,0150	1,0175	1,0175	1,0200	1,0200

Percentage of Cover Factor (PCF)

The PCF is determined as follows:

For (max(PCC, PCP) ≤ 0,95, PCF = 1)

For (max(PCC, PCP) > 0,95, PCF = 1 + ((max(PCC, PCP) – 0,95)/0,05 ) × (percentage of cover coefficient))

The percentage of cover coefficient is obtained from the following table:

	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
	1	2	3	4	5	6	7
Percentage of cover coefficient	0,00000	0,00337	0,00489	0,01639	0,03657	0,05878	0,08598

Better than Sovereign Factor (BTSF)

When an obligor is classified in the “better than sovereign” (SOV+) buyer risk category, BTSF = 0,9, otherwise BTSF = 1.

Local Currency Factor (LCF)

For transaction making use of local currency country risk mitigation, the value of the LCF may not exceed 0,2. The value of the LCF for all other transactions is 0.

‘ANNEX IX

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.

‘ANNEX X

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF A THIRD PARTY REPAYMENT GUARANTEE AND THE CLASSIFICATION OF MULTILATERAL OR REGIONAL INSTITUTIONS

PURPOSE

This Annex provides the criteria and conditions that govern the application of third party repayment guarantees, including the repayment guarantee of a classified multilateral or regional institution according to Article 24(e) of the Arrangement. It also provides the criteria by which multilateral or regional institutions should be assessed when determining if an institution should be classified in connection with Article 28 of the Arrangement.

APPLICATION

Case 1: Guarantee for the Total Amount at Risk

When security in the form of a repayment guarantee from an entity is provided for the total amount at risk (i.e. principal and interest), the applicable Country Risk Classification and Buyer Risk Category may be that of the guarantor when the following criteria are met:

• — The guarantee covers the entire duration of the credit.

• — The guarantee is irrevocable, unconditional and available on-demand.

• — The guarantee is legally valid and capable of being enforced in the guarantor country's jurisdiction.

• — The guarantor is creditworthy in relation to the size of the guaranteed debt.

• — The guarantor is subject to the monetary control and transfer regulations of the country in which it is located.

For classified Multilateral or Regional Institutions acting as guarantors, the following criteria apply:

• — The guarantee covers the entire duration of the credit.

• — The guarantee is irrevocable, unconditional and available on-demand.

• — The guarantor is legally committed for the total amount of the credit.

• — The repayments are made directly to the creditor.

If the guarantor is a subsidiary/parent of the guaranteed entity, Participants shall, on a case-by-case basis, determine whether: (1) in consideration of the relationship between the subsidiary/parent and the degree of legal commitment of the parent, the subsidiary/parent is legally and financially independent and could fulfil its payment obligations; (2) the subsidiary/parent could be affected by local events/regulations or sovereign intervention; and (3) the Head Office would in the event of a default regard itself as being liable.

Case 2: Guarantee Limited in Amount

When security in the form of a repayment guarantee from an entity is provided for a limited amount at risk (i.e. principal and interest), the applicable Country Risk Classification and Buyer Risk Category may be that of the guarantor for the portion of the credit subject to the guarantee, providing that all other criteria listed under Case 1 are met.

For the unguaranteed portion, the applicable Country Risk Classification and Buyer Risk Category is that of the obligor.

Classification of Multilateral or Regional Institutions

Multilateral and regional institutions shall be eligible for classification if the institution is generally exempt from the monetary control and transfer regulations of the country in which it is located. Such institutions shall be classified in Country Risk Categories 0 through 7 on a case-by-case basis according to an assessment of the risk of each on its own merits and in consideration of whether:

• — the institution has statutory and financial independence;

• — all of the institution's assets are immune from nationalisation or confiscation;

• — the institution has full freedom of transfer and conversion of funds;

• — the institution is not subject to government intervention in the country where it is located;

• — the institution has tax immunity; and

• — there is an obligation of all its Member countries to supply additional capital to meet the institution's obligations.

The assessment should also take into consideration the historical payment record in situations of country credit risks default either in the country where it is located or in an obligor's country; and any other factors which may be deemed appropriate in the assessment process.

The list of classified multilateral and regional institutions is not closed and a Participant may nominate an institution for review according to the above-listed considerations. The classifications of multilateral and regional institutions shall be made public by the Participants.

‘ANNEX XI

BUYER RISK CATEGORIES QUALITATIVE DESCRIPTIONS

Better than Sovereign (SOV+)

This is an exceptional classification. The entity achieving such a classification is one with an exceptionally strong credit profile which could be expected to fulfil its payment obligations during a period of sovereign debt distress or even default. International Credit Rating Agencies issue regular reports listing Corporate and Counterparty Ratings that exceed the Sovereign's Foreign Currency Rating. Except when the risk sovereign has been identified through the Sovereign Risk Assessment Methodology as being significantly higher than country risk, Participants proposing that an entity be classified as better than sovereign shall reference such better than sovereign ratings in support of their recommendation. In order to be classified as better than its host sovereign, an entity would be expected to display several or normally a majority of the following characteristics or equivalents:

• — A strong credit profile;

• — substantial foreign exchange earnings relative to its currency debt burden;

• — production facilities and cash generation ability from subsidiaries or operations offshore, especially those domiciled in highly rated sovereigns, i.e. multinational enterprises;

• — a foreign owner or a strategic partner which could be relied on as a source of financial support in the absence of a formal guarantee;

• — a history of preferential treatment of the entity by the sovereign, including exemption from transfer and convertibility constraints and surrender requirements for export proceeds, and favourable tax treatment;

• — committed credit lines from highly rated international banks, especially credit lines without a material adverse change (MAC) clause which enable banks to withdraw committed facilities in the event of a sovereign crisis or other risk events; and

• — 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 (^{15 18 22 1 29 31 36 2 37}). 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

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

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)