Interest rates

There are two forms of ECGD support available.

•Pure cover

ECGD can give guarantees for the repayment of finance where a fixed or floating commercial interest rate is agreed between the lending bank and the borrower. This is known as 'pure cover’.

Contracts financed on a pure cover basis are not bound by the minimum interest rate rules of the OECD Arrangement on Officially Supported Export Credits. However, they are subject to all the other points on credit terms set out in this section.

•Fixed Rate Export Finance

ECGD’s support for fixed interest rates is given through ECGD’s Fixed Rate Export Finance (FREF) scheme in which approved banks participate. This scheme enables a bank to offer fixed interest rates to overseas buyers by ensuring that it will, at the end of each interest period under the relevant loan, receive from ECGD any shortfall between the amount of interest receivable from the borrower at the agreed fixed rate and the amount which would have been receivable if the interest rate had been equal to London Inter-Bank Offered Rate for deposits in the currency of the loan for a term equal to the interest period (“LIBOR”), plus the bank’s margin on the loan. Conversely, if, in any interest period, interest on the amount outstanding under the loan at LIBOR plus the bank’s margin is less that the fixed rate interest receivable from the borrower, the bank will pay the excess to ECGD.  

The current FREF scheme (2005 FREF) was introduced on 1st April 2005 and is due to expire on 31st March 2011.  Under this scheme ECGD interest rate support will only be available in cases where (a) ECGD has issued an offer of support before 1st April 2011 and (b) all of the conditions set out in that offer have been satisfied before the end of the period for which it is expressed to be open for acceptance.  (However, FREF support may be available after 31st March 2011 under such new FREF scheme, if any, as ECGD may introduce in place of the current FREF scheme.)

The Arrangement regulates the minimum fixed interest rates that can be made available with support from exporters' governments. These rates are known as Commercial Interest Reference Rates (CIRRs), and vary according to the currency of finance, and are available for three repayment profile maturities: up to five years; over five and up to and including eight and a half years; and over eight and half years.

CIRRs are calculated on the 15th of each month for most of the main trading currencies  according to criteria specified in the Arrangement and are intended to reflect what the market rate would be for long-term, fixed-rate export finance for a first class corporate borrower, if such finance were commercially available.  Once the applicable CIRR is fixed in relation to a particular ECGD-supported loan in the manner described below, it remains valid for the entire term of that loan.

The current CIRR rates can be obtained from ECGD’s website ( www.ecgd.gov.uk). For a particular transaction, please contact the ECGD Helpline on +44 (0) 20 7512 7887 for details of the relevant underwriter for your sector.

Under the 2005 FREF Scheme, the interest rate that ECGD may agree to support under the revised scheme will be the CIRR prevailing at or about the time the lending bank releases the relevant loan agreement for signature by all parties.  In most cases the interest rate specified in the loan agreement will only be applicable if the loan agreement is signed by all parties within the initial 30-day period. If, within that 30-day period the loan agreement has not been signed by all parties, then the held rate will no longer apply. At this point if ECGD’s offer of support is still valid, a new supported rate will be determined on that day and held for a further 30 days and again on each successive thirtieth day within the validity period of ECGD’s offer of support. When the period for acceptance of an offer of support has expired, ECGD’s commitment to provide FREF support ceases.

However, for contracts with public or sovereign buyers in certain specified countries the initial period for which the rate will be held is 60 days. The countries concerned are: Mexico, Iran, Brazil, Turkey, Vietnam, Libya and Uzbekistan.  ECGD will also consider, on a case-by-case basis, other markets for holding of the CIRR for 60 days, subject to customers at that time providing ECGD with legitimate reasons for this proposed concession.

In addition, the initial period for which the rate will be held will be 60 days for Supplier Credit Finance facilities where either the premium is being paid out of the loan or the transaction involves the use of bills or notes, irrespective of the identity of the borrower or the country where it is established.

Further information about the revised scheme, and any changes made to it from time to time, will be posted on our website ( www.ecgd.gov.uk).

•Currency of finance

Under the 2005 FREF scheme ECGD can provide support for a loan denominated in Sterling, US dollars, euros and Japanese Yen provided that the amount to be advanced under that loan does not exceed £50m, $90m, €70m or, as the case may be, JPY10,000m. For more information please contact Vasso Agapitou on +44 (0) 20 7512 7040.

•FREF after 2011

In December 2007 ECGD launched a public consultation on the future of FREF support. ECGD published an Interim Response  to that consultation in March 2008 which, among other things, announced the extension of the validity of the 2005 FREF scheme to 31 December 2008. The availability of the scheme was further extended twice, to 31 December 2009 and to 31 March 2011, subject to the continuing availability of funds under the existing FREF budget. A Final Government Response will be published prior to the expiry of the current FREF scheme (by 31 March 2011) in order to announce whether, and in what form, ECGD will continue to provide FREF support after that date.