There exists in export credit a boundary that nothing marks in a commercial contract and that nevertheless governs the product, the regulatory framework and the possible insurer: the two-year line. Below it lies short term, the domain of ordinary credit insurance, whole-turnover policies and an abundant private market. Above it lies medium and long term, the domain of export credit guarantees, public agencies and a binding international framework. These two worlds sometimes use the same words and do not work the same way, and a contract crossing the boundary changes nature without anyone in the sales department noticing.
The first consequence is that tenor is not one parameter among others, it is a door. A twenty-three month contract is placed with insurers who will not look at the same deal at twenty-six. Crossing into medium term brings in an international framework imposing minimum premiums, maximum tenors by country category, a minimum down payment made before or during performance, and a regular repayment profile. Those rules do not apply to short term, and they are not negotiable in medium term. An amendment extending a contract by three months can therefore make ineligible a structure that was eligible, and the exporter discovers the obstacle while looking for its cover, long after signing.
The second consequence lies in what is counted. In short term, tenor is ordinarily measured as the payment period granted after delivery, and the cycle is simple: ship, invoice, wait sixty or ninety days. In medium term, tenor is counted from a conventional starting point, often delivery or commissioning, and performance of the contract can itself stretch over years before that point is reached. Two contracts displaying the same repayment tenor can therefore tie up capacity for very different periods, and it is the total exposure period that interests an underwriter.
One must then know that the boundary also governs who may insure. The marketable-risk classification, reserving short-term risks on certain countries to the private market, only operates in short term: the same buyer, in the same country, can be unreachable at the public window at eighteen months and reachable at twenty-five. It is one of the rare cases where lengthening a transaction widens the field of insurers instead of narrowing it, and it is also one of the reasons some structures are built beyond two years rather than below, not from the buyer's cash needs but because cover exists on that side.
Documentation changes too, and the exporter crossing the boundary for the first time underestimates what that means. A short-term transaction is covered on a declaration and a buyer limit. A medium-term transaction requires a review, examination of the commercial contract and of the financing plan, often an environmental and social review on large projects, and a timetable counted in months. Entering a commercial negotiation with a signature deadline six weeks out, on a structure calling for medium-term cover, amounts to promising what no review can follow.
One particular trap deserves naming because it closes on serious exporters: split tenor. A twenty-two month contract with an extension option, or with a maintenance tranche payable two years after acceptance, is not a twenty-two month contract. The question an insurer asks is that of the last contractually possible maturity, not the hoped-for one. A structure presented as short term, with a clause allowing the two years to be exceeded, will be reclassified at review or, worse, at the loss, and reclassification at the loss leaves no correction possible.
The discipline amounts to treating tenor as structuring data and not as a commercial adjustment variable. Situate the transaction relative to two years before choosing a product. Count the tenor from the starting point the insurer will adopt, and to the last maturity the contract permits. Check that a contemplated amendment does not cross the boundary. And when it is crossed, open the review at once, because it is the review's timetable, not the negotiation's, that decides when the deal can be signed.
A sorting equipment manufacturer signs a 7 million euro contract with a private buyer in North Africa, payable in eight half-yearly instalments from commissioning, that is twenty-three months of repayment. Manufacture and installation take eleven months. Cover is placed as short term with a private insurer. Three months after signing, the buyer requests an amendment adding a spare parts tranche, payable three months after the last instalment, which takes the last possible maturity to twenty-six months. The salesperson sees a 300,000 euro amendment on a 7 million contract and treats it as a formality. What should they be told?
The amendment is not a formality, it is a change of world, and its amount bears no relation to its effect. Twenty-six months place the transaction beyond the two-year boundary: it leaves short term, and therefore the product bought, and enters a domain where an international framework applies, with a minimum down payment, a regular repayment profile and tenors capped by country category. The cover in place does not follow, and the private insurer that quoted short term did not quote this. Two effects compound in opposite directions, which makes the decision less obvious than it looks. On one hand, reviewing a medium-term guarantee is counted in months, examination of the contract and the financing plan included, while the amendment is put forward for immediate signature: promising signature amounts to promising what no timetable can hold. On the other, crossing the boundary can widen the field of insurers rather than narrow it, since the marketable-risk classification operates only in short term, so that the public window becomes conceivable where it was closed. Three steps follow. Tell the current insurer, before signature, that the last possible maturity moves to twenty-six months, because it is that date and not the hoped-for one that classifies the transaction. Quantify the total exposure period, eleven months of performance plus twenty-six of repayment, which is what an underwriter looks at. And accept the amendment only once it is known who will cover, or split it into a separate contract that leaves the first below two years.
- 01The two-year boundary appears in no commercial contract and governs the product, the applicable framework and the possible insurer.
- 02Medium term brings minimum premiums, a down payment, a regular repayment profile and capped tenors, and none of it is negotiable.
- 03What classifies a transaction is the last contractually possible maturity, never the hoped-for one: an extension option is enough to reclassify it.
- 04Crossing the boundary can widen the field of insurers, since the marketable-risk classification operates only in short term.
- 05Reviewing a medium-term guarantee is counted in months: its timetable, not the negotiation's, fixes when signature is possible.