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PEFCO Primer

The following is an introduction to PEFCO and its programs. For details on specific PEFCO facilities, please see Programs.

PEFCO was incorporated on April 9, 1970 under Delaware law and is principally engaged in making U.S. dollar loans to foreign importers to finance purchases of goods and services of United States manufacture or origin. PEFCO's shareowners include most of the major commercial banks involved in financing U.S. exports, industrial companies involved in exporting U.S. products and services, and financial services companies.

PEFCO was established with the support of the United States Department of the Treasury and the Export-Import Bank of the United States ("Ex-Im Bank") to assist in the financing of U.S. exports through the mobilization of private capital as a supplement to the financing already available through Ex-Im Bank, commercial banks, and other lending institutions. Ex-Im Bank has cooperated in the operation of PEFCO through various agreements described under "PEFCO's Relationship with Ex-Im Bank" and in the "Notes to the Consolidated Financial Statements" (see the current Annual Report).

Since all loans made by PEFCO are guaranteed or insured as to the due and punctual payment of principal and interest by Ex-Im Bank or other U.S. government institutions, such as the Overseas Private Investment Corporation ("OPIC"), whose obligations are backed by the full faith and credit of the United States, PEFCO relies upon this U.S. government support and does not make evaluations of credit risks, appraisals of economic conditions in foreign countries, or reviews of other factors affecting collectability of its loans.

PEFCO's Lending Programs

In an effort to better support Ex-Im Bank, PEFCO has created a loan product or loan purchase program to match nearly every one of Ex-Im Bank's guarantee or insurance programs. Thus, just as Ex-Im Bank has Short-, Medium- and Long-Term Guarantee and Insurance Programs, so too does PEFCO have Short-, Medium and Long-term Loan Programs wherein we either make or purchase loans that have been guaranteed or insured by Ex-Im Bank.

Long-Term Loan Program

PEFCO will commit to finance U.S. exports under long-term Ex-Im Bank guarantees, by either making loans directly to borrowers (Primary Loan Activity) or by buying loans made by other lenders (Secondary Loan Activity).

The interest rates at which PEFCO is willing to lend to borrowers (or the price at which PEFCO is willing to buy loans from lenders) is based on PEFCO’s estimated cost of funds at the time the loan is to be made (or purchased), taking into account the disbursement and repayment characteristics of the loan. PEFCO's estimated cost of funds is usually based on the U.S. Treasury yield for a maturity similar to the average life of the loan being funded, to which is added the premium required to place PEFCO's Secured Notes, warehousing and hedging costs, if any, and a modest margin for expenses, risk, and return to shareowners. PEFCO also charges commitment fees calculated on the committed, undisbursed, and uncancelled amount of its loan commitments.

Typically, PEFCO Loans may be prepaid, but only upon paying PEFCO a fee equal to the present value of the reinvestment loss, if any, which would be incurred by PEFCO as a result of such cancellation or prepayment.

In the case of its Secondary Market Loan Activities, PEFCO supports lenders making long-term loans by making or buying fixed-and floating-rate loans that: (i) are guaranteed against non-payment with a comprehensive Ex-Im Bank guarantee (or are otherwise insured or guaranteed against all risks by a U.S. government institution whose obligations are backed by the full faith and credit of the United States); (ii) have an original value of more than $10 million; and (iii) were originally scheduled to be repaid in five years or more. PEFCO typically buys such loans at a discounted price calculated to provide a yield to maturity on the loan equal to PEFCO’s current direct lending rates for similar loans or (in the case of premium loans) pay to the originating loans any excess interest margin on the loan over and above PEFCO’s then current

Short- and Medium-Term Program

The Short- and Medium-Term Program is primarily a secondary market activity where PEFCO purchases loans or leases originated by Lenders or Lessors. To be eligible for purchase by PEFCO, the repayment of the loan or lease must be covered by a comprehensive (i.e., covering all political and commercial risks) guarantee issued by Ex-Im Bank.

Participating Lenders and Lessors must demonstrate an understanding of and experience with Ex-Im Bank programs and policies, and evidence sufficient financial strength and stability to indemnify PEFCO should they loose the benefit of Ex-Im Bank’s cover.

PEFCO charges interest on the amount it purchases and, in some cases, a commitment fee. The Lender or Lessor retains any interest and fees above those charged by PEFCO.

In order to help Ex-Im Bank reach a greater segment of small businesses, PEFCO offers the Small Business Initiative, a collection of special services and programs designed to help small business exporters access competitive and reliable export finance.

Short-Term Facilities

Short-term loans have scheduled maturities of one year or shorter. They typically finance exports of consumer goods, bulk agricultural products, and small capital goods.

Short-Term Working Capital Loans

PEFCO purchases participations in loans guaranteed under the Ex-Im Bank Working Capital Guarantee Program. PEFCO charges interest on its participation. The Lender retains any difference between the interest charged to the Borrower and PEFCO’s interest. US Prime-based and LIBOR-based interest rates are available.

The Lender continues to service the loan and maintain the guarantee.

Medium-Term Facilities

Medium-term loans have scheduled repayments of between 2 to 7 years with financed amounts up to $10 million. Extended repayment terms of up 18 years are available for certain environmentally beneficial exports. They typically finance the export of capital goods.

PEFCO purchases both floating rate (i.e., LIBOR based) and fixed rate medium-term Notes and Leases. Our commitment to purchase a Loan or Lease is issued after Ex-Im Bank has approved the Lender’s or Lessor’s application. PEFCO periodically publishes its interest rates and fees as market conditions change.

The Guaranteed Note Facility

This is PEFCO’s program for purchases of medium-term guaranteed Notes (see PEFCO Programs for a fuller description). Generally, the Lender has the responsibility to maintain the Ex-Im Bank guarantee, including filing a timely claim, and billing the borrower for periodic installments. However, for a fee PEFCO will assume the billing function. The Lender receives its interest spread over the life of the loan.

The Discount Facility is a variation on the Guaranteed Note Facility that is available for fixed rate Notes only. Under the Discount Facility, the Lender fixes its interest rate with PEFCO prior to loan disbursement. The Lender’s interest spread is discounted and paid up front rather than over the life of the loan. PEFCO must assume the Lender’s obligations to maintain the guarantee, bill and collect installments, and, if necessary, file claims under the guarantee.

The Guaranteed Lease Facility

This is PEFCO’s program for purchases of medium-term guaranteed Leases (see PEFCO Programs for a fuller description). Generally, the Lessor has the responsibility to maintain the Ex-Im Bank guarantee, including filing a timely claim, and for billing lessee for periodic rent payments. However, for a fee PEFCO will assume the billing function. The Lessor receives its interest spread over the life of the Lease.

Small Business Initiative

The PEFCO Small Business Initiative is a PEFCO undertaking to assist lenders with funding problems that are not efficiently addressed under PEFCO's standard formats and to assist small exporters in obtaining access to reliable lenders for the financing of their exports. All Small Business Initiative programs have been created at the request of a lender or Ex-Im Bank. PEFCO encourages lenders to use the Small Business Initiative when they have special funding needs.