Cross-border equipment leasing

International leasing can be considered as an alternative to cross-border equipment loans in some emerging foreign markets, but international leases may not always resemble equipment leasing deals as they’re done in the USA. Synthetic leases, FMV leases, sale-leasebacks, and the myriad of other equipment leasing arrangements available domestically are not feasible for most international leasing transactions. Challenges include due diligence, perfecting security interest in overseas collateral, different international leasing regulations, accounting principles, tariffs, and tax laws. As described below, however, international leasing may be feasible in some cases.

Finance Leases: For international leasing deals in countries where capital leases are treated as conditional sales agreements, the only significant differences between international leases and cross-border equipment loans are found in the documents. The financing structure, export credit insurance, political risk insurance, downpayment requirements (if any), and payment streams for international leases are essentially the same as for cross-border equipment loans. Accordingly, the lease-end purchase option in this kind of international lease is usually a one-dollar buyout.

Operating Leases: International leasing in the form of true leases or rental agreements may be feasible for exports of very large capital equipment with a long economic life relative to the payment period, consistent with FASB 13 and IASB 17 international leasing guidelines. Since there is no outright sale to the buyer and the lessor retains title to the equipment, export credit insurance for an operating international lease typically covers a rolling window of monthly rental payments rather than the entire payment stream. International leasing insurance also typically includes protection against a lessor’s inability to exercise its perfected security interest in the collateral following a payment default or at the end of the lease term.

Most of the time exporters or their foreign customers inquire to Meridian about international leasing, they’re using the term “international lease” simply to mean the foreign buyer is seeking financing to pay for the equipment over several years. In other words, the solution in many cases is not narrowly international leasing but broadly cross-border equipment financing which could be in the form of an equipment loan, an international lease, or some other financing structure.


Project finance

Meridian Finance Group can arrange cross-border project finance to address the unique requirements of turnkey installations, technology transfers, infrastructure programs, franchise operations, maintenance contracts, and other kinds of project finance, as long as the underlying source of repayment derives from a well-established creditworthy borrower or guarantor.

Project finance may be more challenging to arrange for transactions wherein the only source of repayment will be the cash flows generated by the project itself. Meridian can arrange this kind of project finance in some cases, for example when the transaction is backed with a sovereign guarantee extending the full faith and credit of the government of the host country.

Special project finance programs exist for projects in some other sectors, including environmental exports (Ex-Im Bank), joint ventures (OPIC), and emerging markets (IFC). Meridian can also arrange project finance using some of these programs.

When there is no existing equity position, revenue stream, or cash flow evidenced by a satisfactory borrower or guarantor, nor a sovereign guarantee or special project finance program like those mentioned above, Meridian will become involved in trying to arrange project finance on a mandated or retainer basis only.

Project finance often requires political risk insurance, which Meridian specializes in brokering for private-sector project finance in high-risk markets as well as public-sector project finance with a foreign government as the obligor or guarantor.


Pre-export working capital

While Meridian does not offer purchase-order financing or pre-shipment lines of credit for U.S. exporters, we do have considerable experience with Ex-Im Bank, SBA, and other federal, state, and private-sector pre-export loan and guarantee programs, and we’re pleased to refer exporters to local banks and asset-based lenders who do extend these kinds of export finance.

Ex-Im Bank and SBA guarantees, as well as other kinds of pre-export purchase order financing, are available when a foreign buyer will be paying (a) via a letter of credit or (b) on open-account credit terms IF the exporter or the lender has an export credit insurance policy to protect against non-payment risks once the order has shipped.

In some cases export credit insurance can even provide protection for exporters and lenders prior to shipment, for example covering against contract frustration due to the bankruptcy or insolvency of a buyer, government actions or political events in the buyer’s country, project finance issues, and/or other risks.


Pre-import trade cycle financing

Facing limited access to capital in their own countries, and unable or unwilling to borrow from local banks, suppliers in emerging economies now more than ever before are seeking working capital in the form of cash deposits from their U.S. customers.

When U.S. importers send cash overseas in advance of receiving goods from their foreign suppliers, they’re exposed to the risk that the supplier would be unable to manufacture or ship the goods due to government actions or political events in the supplier’s country, a risk which can be mitigated with political risk insurance.

If paying cash in advance to a foreign supplier is not only a risk consideration but also an issue of working capital for a U.S. importer, then it may be possible to arrange pre-shipment financing for the supplier. Pre-shipment import finance is typically secured with the supplier’s receivables so that payments of the supplier’s invoices will flow from the U.S. importer directly to the lender.


Custom financing structures

Meridian is sometimes approached with export credit, international leasing, or project finance deals featuring structures we have neither seen before nor even could have imagined, yet we’ve gone on to arrange trade credit or project finance for them. Call or e-mail us with the highlights of your prospective export deal, international lease, or project finance transaction. We’ll respond quickly with a proposal or suggestions of how to restructure the deal to make trade credit or project finance more feasible. If Meridian can’t do the job we may know who can, in which case we’ll be pleased to refer you to other export credit, international leasing, or project finance resources.