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Bulgaria: Clarification of Call for Expression of Interest to select Financial Intermediaries that will receive resources from the JEREMIE Holding Fund to implement the First Loss Portfolio Guarantee Financial Instrument

  •  
    Date: 18 November 2010 - 17 January 2011

JER009

Ref.: Call for EoI No. JER-009/2010/2

Clarification Document and FAQ to the Call for Expression of Interest No. JER-009/2 to select Financial Intermediaries that will receive resources from the JEREMIE Holding Fund for Bulgaria to implement the following Financial Instrument: First Loss Portfolio Guarantee. 

The aforementioned call stipulated that: “Requests for clarifications from Applicants shall not receive individual replies. Instead, answers to all requests for clarifications received within the relevant deadline will be published together in a clarification document to be posted on the website www.eif.org, at latest on 20/12/2010”.

In accordance with this provision, we hereby present such a clarification document complemented with frequently asked questions.

Capitalised expressions utilised below shall have the meaning attributed to them in the above mentioned Call for Expression of Interest, unless otherwise defined below or the context requires otherwise. Questions may appear as they have been received without any editing from EIF; they also appear in a random order.

Question 1

With regard to the responsibility of the Financial Intermediaries to ensure adherence to the De Minimis Regulation, how shall the Financial Intermediaries access information on the state aid received by an eligible SME to a certain moment provided that there is no fully functioning central state aid register in Bulgaria? Is obtaining of a declaration for non-exceeding de minimis ceiling by an Eligible SME enough for meeting the above mentioned requirement?

 

EIF Answer

Financial Intermediaries shall be responsible for the calculation of the Gross Grant Equivalent (“GGE”) and on that basis they should obtain a declaration from SMEs confirming that the sum of GGE under the Guarantee and any previous de minimis aid obtained by the SME does not result in exceeding the relevant regulatory thresholds.

Question 2

Please, provide more information on the guarantee payment mechanism. How is the term “Loss” interpreted? What are the preconditions that have to be met by the Financial Intermediary in order to receive guarantee payment from the European Investment Fund? Is the guarantee payment transferred before the start of the recovery period?

 

EIF Answer

The Financial Instrument shall cover losses incurred by the Financial Intermediary as defined by Guarantee Cover in the call.

Recovery costs (if any) shall be deducted from the loss recoveries. Loss recoveries, net of recovery costs (if any) shall be shared with EIF according to the Guarantee Rate.

Guarantee Payments take place following the occurrence of a Loss on eligible SME Transactions and subject to receiving valid payment demands. Payment must be made within 60 calendar days of the relevant Report Date. The guarantee payment might therefore take place before the start of recovery actions.

Question 3

What are the criteria of the EIF for determining the Guarantee Cap Rate of a selected Financial Intermediary?

 

EIF Answer

The Guarantee Cap Rate is determined on the basis of historical data as well as expectations regarding the development of the underlying portfolio of SME Transactions proposed by the Financial Intermediary for the First Loss Portfolio Guarantee. The characteristics taken into account for the determination of the Guarantee Cap Rate include, among others, NPLs, LGDs, information on the recovery process, etc.

Question 4

Is the Guarantee Cap Rate percentage of the aggregate amount of loan principal committed to be available under newly originated eligible transactions or, alternatively, percentage of the guarantee capped amount?

 

EIF Answer

The obligation to pay under the Guarantee is capped at the Cap Amount, which is the maximum liability under the Guarantee and is calculated on the portfolio basis as the product of the i) lower of the Actual Portfolio Volume and the Agreed Portfolio Volume, ii) the Guarantee Rate, iii) the Guarantee Cap Rate, and iv) the Disbursement Ratio. The Cap Amount will be recalculated following recoveries received by the Guarantor.

Question 5

In the SME Transaction Criteria it is stated that “SME Transactions shall not receive any assistance under any operational programme (as defined in the Council Regulation) other than the Operational Programme”. Is a newly originated SME Transaction for financing the expenditures of project under Priority Axis of OP “Competitiveness” other than Priority Axis 3 an eligible one?

 

EIF Answer

Such an SME Transaction is not eligible. SME Transactions can currently only receive assistance from the Operational Programme in the form of the Guarantee.

Question 6

What is the procedure for signing a Confidentiality Agreement between a bank and the European Investment Fund?

 

EIF Answer

The information received from Financial Intermediaries in the framework of this Call is treated as confidential information. A Confidentiality Agreement can be signed with a  pre-selected Financial Intermediary upon request, before due diligence.

Question 7

Will be defined in the agreement with the EIF what could be the maximum risk coverage of the SME loan principle amount using the portfolio guarantee from EIF?

 

EIF Answer

Please see the answer above on Q 4.

Question 8

We need more explanation on the Financial Instrument -example transaction. Per example: What will be the guarantee coverage amount if after the due diligence process the agreed cap amount is EUR 10 m?

 

EIF Answer

Based on the assumption that the Guarantee Cap Rate corresponds to 25%, in the case above the selected Financial Intermediary will have to build up a portfolio of EUR 50m (EUR 50m * 80% guarantee rate * 25% guarantee cap rate = EUR 10m). All eligible SME Transaction included in the Portfolio will be covered at a guarantee rate of 80% and guarantee payments will be made up to the Cap Amount calculated as per the answer to Q 4.  

Question 9

Our bank has signed agreement with EBRD for SME credit line. Referring to the Structural Fund requirements, could the bank combine the EBRD sub-loans with the First Loss Portfolio Guarantee Financial Instrument?

 

EIF Answer

Yes. Any type of funding obtained by the Financial Intermediary on commercial terms can be used as long as all the eligibility criteria are complied with.

Question 10

For calculation of the Actual Volume and the paying amounts in case of claims for loans in BGN what exchange rate should we use – the fixed exchange rate of the Bulgarian National Bank (1.95583) or another one?

 

EIF Answer

The fixed exchange rate of the Bulgarian lev to the euro is expected to be used. The agreement will determine the dates on which the relevant conversions must be made.

Question 11

According to p.2, Appendix 2 to EoI (“Annual reports for the last three financial years...”) we should submit the financial reports only in electronic format. Please specify whether you mean that we should send them only via e-mail or we should send them via e-mail and also on a CD with the paper documentation via regular post? The scanned documents are in very large files (above 100MB). Do you have the technical capacity to receive such large files via e-mail?

 

EIF Answer

In the list of documents requested (appendix 2 of Annex 1) it is indeed stipulated that “Annual reports for the last three financial years, including audited financial statements (only in electronic format i.e. scanned copies of signed audited financial statements)” are requested.

In the case of very large files consisting of scanned documents, it is expected that they will be found in the removable electronic storage medium but they will be omitted from the e-mail. In such a case there should be an explicit reference that the relevant document is omitted due to size considerations and that will be found in the removable electronic storage medium.

Question 12

Since our financial report for 2010 will be ready in March 2011 is it correct to submit the financial reports for 2007, 2008 and 2009? If yes, would you need any additional financial information for 2010 and if YES, what exactly?

 

EIF Answer

It is correct to submit the audited financial statements for the years 2007, 2008 and 2009. However, any other available reports for 2010 could be provided as well.

Question 13

Could you further explain what you mean under “full commitment of the FI to Eligible SMEs” under point 1.c.ff under Appendix 2 of EoI.

 

EIF Answer

Under that point, the Applicant is requested to provide “estimate of the expected timing for initiation of operations following the signature of the Operational Agreement and also estimate of the full commitment of the Financial Instrument to Eligible SMEs;”

It refers to the expected timing for the total commitment of loans to SMEs until the maximum portfolio volume is reached.

Question 14

Is it acceptable to include an SME loan that is financed with EIB financial resources in the EIF guarantee portfolio?

 

EIF Answer

Yes. Any type of funding obtained by the Financial Intermediary on commercial terms can be used as long as all the eligibility criteria are complied with.

Question 15

Is point 2.4 in the QUALITY ASSESSMENT CRITERIA – “credit policy (internal procedures and guidelines), origination, risk assessment (rating/scoring), loan and/or financial lease approval procedures, collateral requirement, recovery procedures, etc.” and “quality of its existing SME portfolio and the rate of non-performing SME transactions” applicable for the pre-selection phase? If YES, under which point in the EoI exactly should we provide the respective information about our bank?

 

EIF Answer

The documentation referred to above will be requested from pre-selected applicants only prior to due diligence meetings.

Question 16

Would you clarify what do you mean under “regional and nationwide promotion of the Financial Instrument” and “publicity strategy” (Appendix 2, EoI, point 1.c.aa.) and what is the difference between both questions?

 

EIF Answer

These two points are only examples of the elements of the general implementation strategy, for which information is requested under point 1.c.aa.

Question 17

Could you upload on the web site an indicative reporting template which is to be used under the EIF facility?

 

EIF Answer

The reporting template is available here.

Please also consult previous clarification documents in relation to the First Loss Portfolio Guarantee instrument under other JEREMIE mandates available here

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