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Fitch Affirms PEFCO's IDRs at 'AAA'/'F1+'; Outlook Stable
November 13, 2017 / 2:54 PM / in 5 days

Fitch Affirms PEFCO's IDRs at 'AAA'/'F1+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, November 13 (Fitch) Fitch Ratings has affirmed the Long- and Short-Term Issuer Default Ratings (IDRs) of Private Export Funding Corporation (PEFCO) at 'AAA' and 'F1+', respectively. The Rating Outlook is Stable. Fitch has also affirmed the 'AAA' rating on PEFCO's secured debt and the 'F1+' rating on its commercial paper. The ratings and Stable Outlook for PEFCO are directly linked to the U.S. sovereign rating and Outlook. The U.S.'s export credit agency, the Export-Import Bank of the U.S. (Ex-Im), along with other U.S. government institutions, whose obligations are backed by the full faith and credit of the U.S., guarantee the principal and interest on all loans made by PEFCO and the interest on senior secured debt of PEFCO. A full list of ratings is at the end of this release. Ex-Im is currently authorized through U.S. fiscal year 2019, but its Board of Directors currently does not have a voting quorum of three members to approve loans in excess of $10 million. This dynamic has restricted Ex-Im and PEFCO's activities. However, in June and October 2017, the U.S. President nominated five individuals to serve on the Board of Directors of Ex-Im. These nominations are pending confirmation by the U.S. Senate but if confirmed would result in a full Board, which would enable Ex-Im to resume normal lending activities. In either case, the guarantees that Ex-Im has on PEFCO's underlying loans and secured bonds will remain in force over the life of the obligations. KEY RATING DRIVERS IDRs, SECURED DEBT, COMMERCIAL PAPER, SUPPORT RATINGS, SUPPORT RATING FLOORS PEFCO's ratings are directly linked to the U.S. sovereign rating (IDR 'AAA'/'F1+'; Outlook Stable), based on Fitch's view of the U.S. government's financial support for Ex-Im and other government institutions. PEFCO partners with commercial banks and other entities to fund U.S. exports in sectors such as aircraft, energy, small business, equipment, infrastructure and telecommunications. As a privately owned corporation that was created with the support of U.S. Treasury and Ex-Im, PEFCO achieves this mandate by making or purchasing loans in the secondary market from commercial lenders. Fitch believes that PEFCO is of highest credit quality as all loans made by PEFCO are guaranteed or insured by Ex-Im or other U.S. government institutions, whose obligations are backed by the full faith and credit of the U.S. government. Guarantee Agreement Fitch's rationale for aligning PEFCO's ratings to the U.S. sovereign rating is derived from the Amended Guarantee and Credit Agreement between Ex-Im and PEFCO. Under this agreement, Ex-Im guarantees the principal and interest of all covered loans held by PEFCO and the interest payments on senior secured debt issued by PEFCO. The Amended Guarantee and Credit Agreement terminates at the end of 2020; however, a termination of this agreement would not retroactively impact the effectiveness of the guarantees throughout the remaining duration of the loans funded or secured debt obligations incurred before such a termination. All secured debt issued by PEFCO is collateralized by loans guaranteed by Ex-Im and is rated 'AAA'. PEFCO's Support Rating of '1' and Support Rating Floor of 'AAA' reflect Fitch's view that there is an extremely high probability of sovereign support for PEFCO through Ex-Im. In addition, due to the high level of reputational risk to U.S. sovereign debt, Fitch does not foresee a scenario where the U.S. government would not honor Ex-Im's existing obligations to PEFCO's secured note holders. Multiple Sources of Liquidity PEFCO's Short-Term IDR and commercial paper rating of 'F1+' correspond to its Long-Term IDR of 'AAA' and reflects Fitch's view that PEFCO has the highest short-term credit quality. Notwithstanding government support, PEFCO's liquidity profile benefits from multiple sources of liquidity. Primary sources of liquidity include readily available cash, commercial paper issuance, cash that could be generated quickly via sales of high quality investment securities, reverse repurchase agreements with shareowner banks, additional asset sales from government guaranteed Ex-Im loans, and bank credit lines. RATING SENSITIVITIES IDRS, SECURED DEBT, COMMERCIAL PAPER, SUPPORT RATING, SUPPORT RATING FLOOR PEFCO's IDRs and issue ratings are highly sensitive to the U.S. sovereign rating. The support rating of '1' reflects Fitch's expectation of an extremely high level of government support for PEFCO's senior secured debt. PEFCO's Long-Term IDR is at its support rating floor of 'AAA' and therefore is not likely to be downgraded unless Fitch changes its view of the sovereign rating of the U.S. Longer-term, if Ex-Im's charter is not reauthorized and its Board of Directors does not have a voting quorum, Fitch believes that PEFCO may continue to decrease in size. A lack of an Ex-Im voting quorum longer term may result in sustained net losses for PEFCO and/or impact PEFCO's access to commercial paper, and therefore, negative rating actions on the IDRs. An unanticipated shift in PEFCO's fundamental business model towards non-U.S. government guaranteed lending would likely alter Fitch's view of support and result in negative rating actions for the IDRs. The issuance of long-term unsecured funding would negatively impact debt level ratings because it would introduce effective subordination in PEFCO's capital structure and would deviate from PEFCO's historical funding strategy of accessing commercial paper and senior secured debt. Fitch has affirmed the following ratings: Private Export Funding Corporation --Long-Term IDR at 'AAA'; --Short-Term IDR at 'F1+'; --Secured debt at 'AAA'; --Commercial paper at 'F1+'; --Support at '1'; --Support floor at 'AAA'. The Rating Outlook is Stable. Contact: Primary Analyst Sean Pattap Senior Director +1-212-908-00642 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Johannes Moller, CFA Associate Director +1-646-582-4954 Committee Chairperson Joo-Yung Lee Managing Director +1-212-908-0560 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. 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