Counter-Guarantee for exporters

If you as exporter are required to put up contract bonds for an export transaction, the guarantor who is asked to issue the bond on your behalf will then charge your credit line with the relevant bond amount. Often the guarantor requests you to provide adequate security – for instance in the form of a charge over cash collateral. Depositing such security may in turn lead to a reduction of your liquidity.

In issuing a Counter-Guarantee the Federal Government undertakes to reimburse most of the sum to the guarantor which he has to pay out in the event of the contract bond in favour of the foreign buyer (bond holder) being called. This means that the Federal Government takes over the risk for the guarantor that the latter is unable to successfully take recourse for compensation to the exporter, a right which accrues to him for the sum paid out when the bond is called. The Counter-Guarantee therefore goes a long way towards relieving the recourse risks of the guarantor. This relief enables the guarantor not only to refrain from demanding further collateral from the exporter, thus constraining his liquidity, but in addition makes it unnecessary for him to charge the bond amount against the exporter’s credit lines. At the end of the day, this is intended to make it easier for the exporter to put up the bond required by his foreign buyer.

Worth knowing: The Counter-Guarantee supplements the Contract Bond Guarantee.

Target group

• As applicant: German export firms
• As beneficiaries of the Counter-Guarantee:
  • German banks / surety companies
  • branch offices of foreign banks / surety companies with a seat in Germany
  • foreign banks / surety companies (under certain conditions)

Special features

Although the Counter-Guarantee protects the guarantor, it is the exporter who has to apply for it.

As a rule, a Counter-Guarantee will only be issued if parallel a Contract Bond Guarantee for the contract bond to be covered is granted by the Federal Republic. In principle, a Supplier Credit Guarantee is also required. This may, however, be dispensed with if the exporter is not exposed to any foreign payment risks because of the payment terms (e.g. confirmed letter of credit, progress payment). On a case-by-case bases, the Federal Government may grant a Counter-guarantee in combination with a Contract Bond Guarantee also without cover of the other risks of an export transaction if such cover is not available or insurance is not acceptable or not wished by the exporter.

Whether a Counter-Guarantee will be granted is conditional upon the exporter having the necessary technical and organisational resources to ensure the due performance of the export transaction. The exporter’s ability to ensure performance is assessed by means of a questionnaire to be completed by him.

From the moment a Counter-Guarantee is granted until a reimbursement is made the administration will be handled exclusively between the Federal Government and the guarantor. For this purpose, the guarantor has to sign a  so-called “Ergänzungserklärung des Garantiestellers zur Avalgarantie” prior to the final commitment and also perform certain information duties in time.

Premium

• The exporter does not have to pay a separate premium for a Counter-Guarantee. Instead, the Federal Government receives a share in the bond premium, which the exporter has to pay to the guarantor for issuing a contract bond, directly from the guarantor. For this purpose the guarantor will receive one invoice each for the first and the subsequent premium from the Federal Government; to begin with, an advance premium will be charged which will be finally settled at the end of each calendar year and the end of liability.
• The usual premium has to be paid for the compulsory Contract Bond Guarantee and any Supplier Credit Guarantee which may be required.

The core of the Counter-Guarantee is the undertaking by the Federal Government (itself equivalent to a guarantee) towards the guarantor to reimburse to him the amount paid out on a bond call within 10 bank days and on first written demand. The percentage reimbursed can be up to 80%. The undertaking to pay is agreed in a guarantee contract made between the Federal Government and the exporter. If the contract bond for the benefit of the foreign buyer is not issued directly by the exporter’s principal bank, which provides the financing, but by a different credit institution, it is not the direct bond that will be covered by the Counter-Guarantee but the corresponding back-to-back guarantee issued by the exporter’s principal bank. In both cases the undertaking applies – unlike the insured events in con­tract bond cover – for any and every reason for calling the bond, and therefore also to fair calling. After reimbursement has been made, the Federal Government has recourse on the exporter. The right of recourse is normally asserted only six months after reimbursement of the guarantor and only when no claim has been recognized in favour of the exporter as valid up to that date in respect of the corresponding Contract Bond Guarantee. If such a valid claim has been accepted, the claim for recourse will be set off against the amount due for indemnification.

You can apply quite easily for this product online in the myAGA customer portal. Please submit your online application there in order to apply for cover for your export transaction under a Counter-Guarantee. For this purpose please register once and comfortably with just a few steps in our myAGA customer portal. If you already use myAGA you can log on directly with your access data.

If you need assistance with the submission of the application or if you have any questions regarding the suitable product for you, please contact our business consultants.

Our experts will be pleased to answer any questions regarding a Counter-Guarantee and will guide you step by step through the application process if desired. Please do not hesitate to contact them.