Shop talk: Preugschat on the road to recovering ECA debt

TXF: Welcome back into our industry, Kai. Where does Recovery Advisers fit into the export finance ecosystem?

Kai Preugschat (KP): Recovery Advisers is essentially an international dispute resolution law firm that specialises in credit insurance claims and recovery management. We exclusively work for export credit insurers and of course their policy-holding exporters and banks. Our processes are designed to cater to the unique requirements of the credit insurers, throughout the different phases of claims management and recovery.

To name just one distinctive feature, in order to address the unique mandate of export credit agencies (ECAs) for small exporters, we have established a micro-claims unit that exclusively serves cases with values smaller than $100,000.00.

In close collaboration with our sister organisation International Advisers B.V., we have developed a strong network dedicated to local legal expert knowledge and action in many jurisdictions. Hence, we are able to perform fast and accurately, ensuring that action alternatives are established quickly to protect rights and maximise recoverability.

And last but not least, we have completely aligned our commercial interest to actual outcomes achieved, i.e. we solely work on success fee basis. Ultimately, for those credit insurers where we have the deepest relationship, the local recovery experiences are frequently integrated into a feedback loop with the underwriting team. This is of course ideal to safeguard everyone’s interest and reduce the cost of underwriting for the export credit insurers and banks.

Personally, even for someone who has spent all his career in export finance, I find our specialisation quite unique. Recovery Advisers is the first law firm that wholeheartedly embraced export finance claims management only. It is really eye-opening to look at the business from our ”what actually does go wrong” perspective and discover the same enthusiasm and professionalism that forms part of the industry’s DNA.

TXF: Can you provide information about Recovery Advisers credentials’, in which markets are you specialised? 

KP: Jointly with International Advisers we have successfully supported in excess of 30 ECAs in the Middle East, Latin America, Africa, Europe and Asia with cases in 75 countries. These involve predominantly short-term and commodity trade, as well as a significant number of medium/long-term transactions. 

Since inception in 2009, we have handled 18,000 claims. Currently we are working simultaneously on 1,356 cases in the Arab World alone.

TXF: What will be your role?

KP: I am responsible to nurture our newly established Asian hub, based in Singapore. Being closer to our regional clients means we can listen better and learn about their challenges. This enables us to decide where we need to add value locally to ensure recovery effectiveness.

In addition, I will look after our engagement with banks, when they are responsible to lead manage the recovery process. Naturally, we can be help best when we have local operations that a lender may lack.   

Finally, during this time of unprecedented operational constraint for everyone, it is critical to link processes with clients digitally. Whereas our internal platform is completely digital already, we will seek close collaboration with partners to ensure that interaction can be performed via secure application interfaces in the future.

TXF: Can you give us an idea how the current turmoil caused by the Covid-19 systemic shock affects you?

KP: We firmly believe that export credit agencies and their policyholders need to take a very pro-active portfolio management approach to limit both the financial cost but also to safeguard trading relationships for the time after the crisis. 

Given the operational impact on basically every business, it is now imperative to urgently review the traditional export credit approach that relies to a high degree on the insured’s actions for risk mitigation, claim avoidance and recoveries - this risks of being too little too late. In many of the poorer countries central banks had to curtail operations and courts are closed, rendering judicial procedures for defaulted debtors effectively impossible.  

The “technical clarifications” issued by the Basel Committee on 3 April, explaining that customers seeking temporary relief from loan repayments or state-supported credit facilities did not need to be treated as higher risk, has been a missing element.

Whereas payment holidays or forbearance measures that have been authorised and are being implemented by national governments to help domestic businesses in difficulty because of the Covid-19 pandemic, the export credit agencies are now systemically important “shock-absorbers” for international trade.

Many businesses will be badly scarred and change their approach to borrowing for a long time to come. Export credit has the unique opportunity to cement its reputation as trusted and preferred borrowing tool for international trade – but we must all act decisively together to help avoiding defaults and claims in the first place.