Key Person GONE! Is your business protected?

“Risk is caused by people” Robert Lehman

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Risk identification and management have always been vital elements of our Firm’s business. Whether entering new markets, advising clients on financings, or mergers/acquisitions, buying a business, or seeking to protect one’s family, partners, or employees, risk management strategies were ever-present and various insurance tools have been utilized to mitigate those risks. In the next few posts, we will look at various risk mitigation tools businesses can utilize in their domestic and international operations.

With the global spread of the Covid pandemic claiming lives of millions of people, the risks have increased significantly and forced us to take a much deeper look at the potential problems and ways to mitigate them. In this article, I want to focus on a very important, but frequently overlooked risk of losing a key person and explore how a business based in the US, or one entering the US market, can protect itself.

Every business, whether it is a sole proprietorship, partnership, or corporation has folks vital to the ongoing success of that enterprise. Loss of these key people to death, or disability, whether it is CEO, CFO, Head of Sales, Chief Scientist, will have a crippling and costly effect.

So how do key business stakeholders protect themselves? Couple of obvious, but highly underused tools are Key Person Insurance and insurance funded buy-sell agreements.

Key person life and disability policies are meant to compensate the business for losses incurred by a loss of its vital personnel, or shareholders. Such policy premiums are paid by the business and the business will receive any insurance payouts to help cushion the impact of losses. Normally, key person life insurance is structured as a fixed premium 10 or 20 year term policy and the benefit amount of the policy is calculated to compensate for the value of the expected loss. For instance, if a company has a key Sales Manager, who produces $2 million per year in revenue and it is expected that it would take 6 months to a year to replace such a person, a $1 to 2 million term life should be taken out. The investment in such a term policy is negligible compared to the benefits business will receive should a catastrophic loss occur.

Another very interesting situation occurs in closely held corporations, partnerships or sole proprietorships. If an owner, partner, or a significant shareholder succumbs, or becomes disabled, their ownership interests oftentimes pass to the family members, who oftentimes are unwilling, or unqualified to continue running the business, or perform shareholders duties. In such cases, buy-sell agreements should be funded by term insurance policies large enough to cover the fair market value of the ownership interests. In case of a loss of a sole proprietor, the owners family should carry the life insurance/disability insurance to compensate it for the loss of the bread winner. Alternatively, business managers may use a business Key Person policy to buyout the owner’s family and take over the business.

Thus in today’s business climate, any entity not managing its key person risks is remiss and is putting its own survival at risk. To learn more about key person risk mitigation, or to discuss other types of risk management, please email info@broadstreetcap.com

Fluent In EXIM

(or how to realistically obtain US EXIM financing for emerging markets such as Ukraine)

 Recent re-opening of US EXIM Bank’s programs in Ukraine has caused a stir and a flurry of activity among US exporters, Government Agencies responsible for trade promotion, Ukrainian importers and non-governmental agencies working in that market.  Following more than a five-year hiatus, everyone has been excited to expand US-Ukraine’s trading relationship and to increase the quantities of much-needed US exports with the aid of the Bank’s financing.  After all, US exports support US jobs and help Ukraine obtain advanced goods and services needed to grow its economy.

Yet, the early results of all those efforts thus far been negligible due to a dearth of local buyers able to qualify for the Bank’s financing, or trade credit insurance programs. Similar situation has been observed in a number of Central Asian markets, which have recently experienced economic resurgence and thirst for imported goods and services.

In order to enhance the ability of the US Government’s agencies to assist in export promotion and financing and most importantly in order to maximize the ability of US companies to export goods and services to emerging markets, it is vital to understand what are the services provided by the US EXIM and what external components are needed to help grow the numbers of qualified buyers and therefore real exports.

Export Import Bank of the United States (US EXIM) is the official Export Credit Agency (ECA) of the US Government, whose mission is to support export of US-manufactured goods and services with a set of export financing and trade credit insurance tools.

Open for business in over 120 countries, the bank has been in continuous operation since 1934 and for a good number of years of its existence has been contributing profits to the US Treasury, rather than spending the US Government’s budget funds.  Although over the last several years, the Agency has become a victim of political wrangling and its long-term financing programs, those involving terms over 7 years and single transaction amounts over US$ 10 million have been temporarily crippled, the bank’s short and medium programs have continued and are fully operational.

However, when trying to finance, or insure exports to emerging and frontier market countries using US EXIM’s programs, American exporters often face additional hurdles. One of the most severe of those, is finding sufficient number of qualified, or as we call them “bankable” buyers for US goods and services. The second hurdle is often lack of the so-called “15%”, a minimum amount of funds needed from the buyer to supplement the up to 85% of the qualified export amounts financed through the US EXIM’s support.

Here are a couple of typical export frustration scenarios:

a. A large US manufacturer of agriculture equipment with an established distribution network in Ukraine seeking to supply its distributors with $5-6 million dollars in equipment to be sold to Ukrainian farmers prior to the planting season. The US supplier needs to extend open terms of 6 months to its distributors, but needs to insure its risk of non-payment. The US EXIM offers fantastic trade credit insurance products, which after assessing and accepting the buyers’ financials would insure  the US manufacturer for non-payment of up to 95% of the supplied goods.

Yet, for purchase contracts of over $1mil., US EXIM requires the buyers to present  GAAP/IFRS audited financials and in this case none of the distributors audits their financials and doing so may either be not feasible, or cost prohibitive.  Since the distributors appear very financially and reputationally solid, yet unable to meet EXIM’s cursory requirements, the question becomes how to structure the transaction in order to enhance US EXIM’s product and not lose millions of dollars in sales for the US manufacturer?

b. An established Ukrainian agri company is seeking to replace its fleet of machinery and upgrade its grain storage capacity with US manufactured equipment. Size of the transaction is $15 million. To preserve much needed operational cash, the company would like to arrange 100% financing of the acquisition for a term of six years.  The company does audit its financials to IFRS standards, but due to a fairly small transaction size and lack of knowledge of the Ukrainian market by US banks, the company is having a very difficult time, obtaining the 15% co-financing it needs. Once again, $15 million of US exports are in potential jeopardy, what does one do in a situation such as this?

To answer the above questions and to realistically address the issues, which hamper successful export financing in markets such as Ukraine, a task force consisting of a US merchant bank, international law firms, local banks, non-profits and insurance brokers has been created and effective tools developed to truly assist US exporters convert potential opportunities into real exports. Starting later this month in Washington DC, these tools will be presented in a series of workshops called “Fluent In EXIM”. The workshops also will take place both in key Ukrainian and US cities. Given the importance of the US exports to jobs creation and since US EXIM bank is operated under the the supervision of the US Congress, the workshops, in addition to expert panels, will feature members of Congress, as guest speakers. US Ukraine Business Council, a leading non-profit involved in promoting US-Ukraine economic cooperation, will be coordinating these workshops and helping to make US companies trying to export to Ukraine – Fluent In Exim(tm).

 

 

 

 

Broad Street Capital Group to lead an international Trade Mission to Uzbekistan.

For Immediate Release

New York, August 26, 2018. Fresh from its success of developing a pioneering $250 million, 20-year OPIC insured, capital markets financing, Broad Street Capital Group announced today that it will lead an international Trade Mission to Uzbekistan between September 5th and 9th, 2018.

The goal of the Trade Mission is to identify and engage large project development and financing opportunities in the areas of health care, distributed and renewable energy generation, agriculture, ICT and aerospace. 

With its proven ability to develop and structure complex financing solutions ranging from $100 to $500 mil., and utilizing support of Export Credit Agencies (ECAs), such as US EXIM Bank, and of US government development institutions,
such as Overseas Private Investment Corporation (OPIC), Broad Street Capital Group is uniquely positioned to bring low-interest, long-term financing to projects to be developed by the Trade Mission participants and supported by the Government of Uzbekistan.

The mission participants will also introduce an innovative Grey2White™ initiative designed to assist local companies in becoming more bankable and transparent to western partners and international financial institutions.

Joining Broad Street Capital’s team during the upcoming Mission will be representatives of US, UK and Israeli companies, international law firms and professional organizations. The delegation will be led by Mr. Alexander Gordin, Managing Director of the Broad Street Capital Group and will meet with a number of federal and local Government Officials, project sponsors and company owners in Tashkent.

“Uzbekistan represents a tremendous opportunity for international project development and international business cooperation,” said Alexander Gordin. “Policies implemented by President Mirziyoyev have been very effective in attracting foreign investment, supporting technology transfer and focusing on growing key areas of the Uzbekistan’s economy,” added Gordin.

About the Broad Street Capital Group

Based in the heart of New York City’s Financial District, Broad Street Capital Group (www.broadstreetcap.com) is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. Through its member companies, the Group focuses on developing project financing in the $100 million to $1 billion range, providing political risk mitigation, export management services and cross-border market development advisory. The Firm maintains a permanent presence in Astana, Kazakhstan and Kyiv, Ukraine.  Since its founding, Broad Street Capital Group has done business in over 35 countries, spanning the emerging markets landscape from Bangladesh to Ukraine.

The Firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries. Since its inception, Broad Street Capital Group has been involved in multiple high-profile cross-border transactions in IT/telecom, aerospace, health care, energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory and export management portfolio exceeds $900 million and expected to exceed $1.5 billion by November 15th, 2018.

For more information contact: Rustem Tursyn, Representative for Central Asia

+1 212 705 8765 ext. 707, or via email rtursyn@broadstreetcap.com