USAID - FY 2006 PAR: Financial Section - NOTE 6. Direct Loan and Loan Guarantees and Loans and Liabilities for Loan Guarantees

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NOTE 6. Direct Loan and Loan Guarantees and Loans and Liabilities for Loan Guarantees

USAID operates the following loan and/or loan guarantee programs:

Direct Loan Program (Direct Loan)
Urban and Environmental Program (UE)
Micro and Small Enterprise Development Program (MSED)
Israel Loan Guarantee Program
Development Credit Authority Program (DCA)
Egypt Loan Guarantee Program

Direct loans resulting from obligations made prior to FY 1992 are reported net of allowance for estimated uncollectible loans. Estimated losses from defaults on loan guarantees resulting from obligations made prior to FY 1992 are reported as a liability.

The Credit Reform Act of 1990 prescribes an alternative method of accounting for direct loans and guarantees resulting from obligations made after FY 1991. Subsidy cost, which is the net present value of the cash flows (i.e. interest rates, interest supplements, estimated defaults, fees, and other cash flows) associated with direct loans and guarantees, is required by the Act to be recognized as an expense in the year in which the direct loan or guarantee is disbursed. Subsidy cost is calculated by agency program offices prior to obligation using a model prescribed by the Office of Management and Budget (OMB). Subsidy relating to existing loans and guarantees is generally required to be reestimated on an annual basis to adjust for changes in risk and interest rate assumptions. Direct loans are reported net of an allowance for this subsidy cost (allowance for subsidy). The subsidy costs associated with loan guarantees are reported as loan guarantee liability.

An analysis of loans receivable, loan guarantees, liability for loan guarantees, and the nature and amounts of the subsidy costs associated with the loans and loan guarantees are provided in the following sections.

The following net loan receivable amounts are not the same as the proceeds that USAID would expect to receive from selling its loans. Actual proceeds may be higher or lower depending on the borrower and the status of the loan.

Summary of Loans Receivables, Net
(Dollars in Thousands)
	FY 2006	FY 2005
Net Direct Loans Obligated Prior to FY 1992 (Allowance for Loss Method)	$4,183,220	$4,494,975
Net Direct Loans Obligated After FY 1991 (Present Value Method)	360,132	335,572
Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method)	267,263	269,702
Total Loans Receivable, Net as reported on the Balance Sheet	$4,810,615	$5,100,249

Direct Loans

Direct Loans
(Dollars in Thousands)
Loan Programs	Loans Receivables Gross	Interest Receivable	Allowance for Loan Losses	Value of Assets Related to Direct Loans, Net
Direct Loans Obligated Prior to FY 1992 (Allowance for Loss Method) as of September 30, 2006:
Direct Loans	$5,288,905	$382,077	$1,487,761	$4,183,221
MSED	31	36	67	–
Total	$5,288,936	$382,113	$1,487,828	$4,183,221
Direct Loans Obligated Prior to FY 1992 (Allowance for Loss Method) as of September 30, 2005:
Direct Loans	$5,867,779	$316,253	$1,688,991	$4,495,041
MSED	643	96	805	(66)
Total	$5,868,422	$316,349	$1,689,796	$4,494,975
Direct Loans Obligated After FY 1991 as of September 30, 2006:
Direct Loans	$1,089,114	$16,501	$745,777	$359,838
MSED	150	133	(10)	293
Total	$1,089,264	$16,634	$745,767	$360,131
Direct Loans Obligated After FY 1991 as of September 30, 2005:
Direct Loans	$1,043,132	$9,145	$716,853	$335,424
MSED	150	24	27	147
Total	$1,043,282	$9,169	$716,880	$335,572

Total Amount of Direct Loans Disbursed
(Dollars in Thousands)
Direct Loan Programs	FY 2006	FY 2005
Direct Loans	$6,378,018	$6,910,911
MSED	181	793
Total	$6,378,199	$6,911,704

Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
(Dollars in Thousands)
	Direct Loan	MSED	Total	Direct Loan	MSED	Total
	FY 2006			FY 2005
Beginning Balance, Changes, and Ending Balance
Beginning balance of the subsidy cost allowance	$716,853	$27	$716,880	$237,215	$27	$237,242
Add: subsidy expense for direct loans disbursed during the reporting years by component:
(a) Interest rate differential costs	–	–	–	–	–	–
(b) Default costs (net of recoveries)	–	–	–	–	–	–
(c) Fees and other collections	–	–	–	–	–	–
(d) Other subsidy costs	–	–	–	–	–	–
Total of the above subsidy expense components	–	–	–	–	–	–
Adjustments:
(a) Loan modifications	$21,688	$–	$21,688	$480,625	$–	$480,625
(b) Fees received	–	–	–	–	–	–
(c) Foreclosed property acquired	–	–	–	–	–	–
(d) Loans written off	–	–	–	–	–	–
(e) Subsidy allowance amortization	7,236	(37)	7,199	(2,874)	–	(2,874)
(f) Other	–	–	–	1,887	–	1,887
Ending balance of the subsidy cost allowance before reestimates	$745,777	$(10)	$745,767	$716,853	$27	$716,880
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate	–	–	–	–	–	–
(b) Technical/default reestimate	–	–	–	–	–	–
Total of the above reestimate components	–	–	–	–	–	–
Ending balance of the subsidy cost allowance	$745,777	$(10)	$745,767	$716,853	$27	$716,880

Defaulted Guaranteed Loans
(Dollars in Thousands)
Loan Guarantee Programs	Defaulted Guaranteed Loans Receivable, Gross	Interest Receivable	Allowance For Loan Losses	Value of Assets Related to Defaulted Guaranteed Loans Receivable, Net
Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method): FY 2006
UE	$385,728	$61,980	$180,445	$267,263
Total	$385,728	$61,980	$180,445	$267,263
Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method): FY 2005
UE	$382,264	$46,915	$159,477	$269,702
Total	$382,264	$46,915	$159,477	$269,702

Defaulted Guaranteed Loans from Post-1991 Guarantees

In FY 2006, the UE Program experienced $3.2 million in defaults on payments.

In FY 2005, the UE Program experienced $4.2 million in defaults on payments.

Guaranteed Loans Outstanding:

Guaranteed Loans Outstanding
(Dollars in Thousands)
Loan Guarantee Programs	Outstanding Principal, Guaranteed Loans, Face Value	Amount of Outstanding Principal Guaranteed
Guaranteed Loans Outstanding (FY 2006):
UE	$1,510,359	$1,510,359
MSED	17,010	8,505
Israel	12,869,563	12,869,563
DCA	870,636	400,440
Egypt	1,250,000	1,250,000
Total	$16,517,568	$16,039,367
Guaranteed Loans Outstanding (FY 2005):
UE	$1,652,480	$1,652,480
MSED	47,427	23,714
Israel	12,987,372	12,987,372
DCA	911,071	405,810
Egypt	1,250,000	1,250,000
Total	$16,848,350	$16,319,376
New Guaranteed Loans Disbursed (FY 2006):
UE	$–	$–
MSED	–	–
DCA	148,025	51,550
Israel	–	–
Egypt	–	–
Total	$148,025	$51,550
New Guaranteed Loans Disbursed (FY 2005):
UE	$–	$–
MSED	–	–
DCA	177,254	88,627
Israel	750,000	750,000
Egypt	1,250,00	1,250,000
Total	$2,177,254	$2,088,627

Liability for Loan Guarantees
(Dollars in Thousands)
Loan Guarantee Programs	Liabilities for Losses on Pre-1992 Guarantees, Estimated Future Default Claims	Liabilities for Loan Guarantees for Post-1991 Guarantees, Present Value	Total Liabilities for Loan Guarantees
Liability for Loan Guarantees (Estimated Future Default Claims for pre-1992 guarantees) as of September 30, 2006:
UE	$157,266	$155,429	$312,695
MSED	–	(2,152)	(2,152)
Israel	–	1,169,363	1,169,363
DCA	–	10,812	10,812
Egypt	–	170,191	170,191
Total	$157,266	$1,503,643	$1,660,909
Liability for Loan Guarantees (Estimated Future Default Claims for pre-1992 guarantees) as of September 30, 2005:
UE	$195,344	$149,557	$344,901
MSED	–	(1,811)	(1,811)
Israel	–	1,066,734	1,066,734
DCA	–	4,610	4,610
Egypt	–	148,051	148,051
Total	$195,344	$1,367,141	$1,562,485

Subsidy Expense for Loan Guarantees by Program and Component:

Subsidy Expense for Loan Guarantees by Program and Component
(Dollars in Thousands)
Loan Guarantee Programs	Interest Supplements	Defaults	Fees and Other Collections	Other	Total
Subsidy Expense for New Loan Guarantees (FY 2006):
DCA	$–	$5,336	$–	$–	$5,336
MSED	–	86	–	–	86
Total	$–	$5,422	$–	$–	$5,422
Subsidy Expense for New Loan Guarantees (FY 2005):
DCA	$–	$4,297	$–	$–	$4,297
MSED	–	1,110	–	–	1,110
Total	$–	$5,407	$–	$–	$5,407

Subsidy Expense for Loan Guarantees by Program and Component
(Dollars in Thousands)
Loan Guarantee Programs	Total Modifications	Interest Rate Reestimates	Technical Reestimates	Total Reestimates
Modifications and Reestimates (FY 2006):
UE	$–	$–	$–	$–
MSED	–	–	–	–
DCA	–	–	–	–
Israel	–	–	34,372	34,372
Egypt	–	–	14,264	14,264
Total	$–	$–	$48,636	$48,636
Modifications and Reestimates (FY 2005):
UE	$–	$–	$532	$532
MSED	–	–	–	–
DCA	–	–	211	211
Israel	-	-	187,892	187,892
Egypt	-	-	7,335	7,335
Total	$–	$–	$195,970	$195,970

Total Loan Guarantee Subsidy Expense
(Dollars in Thousands)
Loan Guarantee Programs	FY 2006	FY 2005
DCA	$5,336	$4,508
UE	–	532
MSED	86	1,110
Israel	34,372	187,892
Egypt	14,264	7,335
Total	$54,058	$201,377

Subsidy Rates for Loan Guarantees by Program and Component:

Budget Subsidy Rates for Loan Guarantees for the Current Year’s Cohorts
(Percent)
Loan Guarantee Programs	Interest Supplements (%)	Defaults (%)	Fees and Other Collections (%)	Other (%)	Total (%)
DCA	–	4.07%	–	–	4.07%

Schedule for Reconciling Loan Guarantee Liability Balances
(Dollars in Thousands)
FY 2006
(Post-1991 Loan Guarantees)	DCA	MSED	UE	Israel	Egypt	Total
Beginning Balance, Changes, and Ending Balance
Beginning balance of the loan guarantee liability	$4,610	$(1,811)	$149,557	$1,066,734	$148,051	$1,367,141
Add: subsidy expense for guaranteed loans disbursed during the reporting years by component:
(a) Interest supplement costs	–	–	–	–	–	–
(b) Default costs (net of recoveries)	–	–	–	–	–	–
(c) Fees and other collections	–	–	–	–	–	–
(d) Other subsidy costs	5,336	86	–	–	–	5,422
Total of the above subsidy expense components	$5,336	$86	$–	$–	$–	$5,422
Adjustments:
(a) Loan guarantee modifications	–	–	–	–	–	–
(b) Fees received	847	55	2,334	–	–	3,236
(c) Interest supplements paid	–	–	–	–	–	–
(d) Foreclosed property and loans acquired	–	–	–	–	–	–
(e) Claim payments to lenders	(168)	(475)	(3,254)	–	–	(3,897)
(f) Interest accumulation on the liability balance	879	–	8,784	48,272	6,625	64,560
(g) Other	(692)	(7)	18,604	–	–	17,905
Ending balance of the loan guarantee liability before reestimates	$10,812	$(2,152)	$176,025	$1,115,006	$154,676	$1,454,367
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate	–	–	–	–	–	–
(b) Technical/default reestimate	–	–	(20,597)	54,358	15,515	49,276
Total of the above reestimate components	$–	$–	$(20,597)	$54,358	$15,515	$49,276
Ending balance of the loan guarantee liability	$10,812	$(2,152)	$155,428	$1,169,364	$170,191	$1,503,643
FY 2005
Beginning Balance, Changes, and Ending Balance
Beginning balance of the loan guarantee liability	$(2,975)	$(3,902)	$103,787	$700,856	$–	$797,766
Add: subsidy expense for guaranteed loans disbursed during the reporting years by component:
(a) Interest supplement costs	–	–	–	–	–	–
(b) Default costs (net of recoveries)	–	–	–	–	–	–
(c) Fees and other collections	–	–	–	–	–	–
(d) Other subsidy costs	4,298	1,110	–	–	–	5,408
Total of the above subsidy expense components	$4,298	$1,110	$–	$–	$–	$5,408
Adjustments:
(a) Loan guarantee modifications	–	–	–	–	–	–
(b) Fees received	1,443	209	2,591	29,250	137,250	170,743
(c) Interest supplements paid	–	–	–	–	–	–
(d) Foreclosed property and loans acquired	–	–	–	–	–	–
(e) Claim payments to lenders	(310)	(586)	(4,167)	–	–	(5,063)
(f) Interest accumulation on the liability balance	–	–	8,279	47,110	3,109	58,498
(g) Other	3,736	4,784	48,555	(14,153)	–	42,922
Ending balance of the loan guarantee liability before reestimates	$6,192	$1,615	$159,045	$763,063	$140,359	$1,070,274
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate	–	–	–	–	–	–
(b) Technical/default reestimate	(1,582)	(3,426)	(9,488)	303,671	7,692	296,867
Total of the above reestimate components	$(1,582)	$(3,426)	$(9,488)	$303,671	$7,692	$296,867
Ending balance of the loan guarantee liability	$4,610	$(1,811)	$149,557	$1,066,734	$148,051	$1,367,141

Administrative Expense
(Dollars in Thousands)
Loan Programs	FY 2006	FY 2005
DCA	$13,215	$9,615
UE	–	217
MSED	–	2
Total	$13,215	$9,834

Other Information

Allowance for Loss for Liquidating account (pre-Credit Reform Act) receivables have been calculated in accordance with OMB guidance using a present value method which assigns risk ratings to receivables based upon the country of debtor. Seventeen countries are in violation of Section 620q of the Foreign Assistance Act (FAA), owing $65.1 million that is more than six months delinquent. Sixteen countries are in violation of the Brooke-Alexander Amendment to the Foreign Operations Export Financing and Related Programs Appropriations Act, owing $553.7 million that is more than one year delinquent. Outstanding direct loans receivable for countries in violation of Section 620q totaled $55.1 million. Outstanding direct loans receivable for countries in violation of the Brooke Amendment totaled $514.6 million.
The MSED Liquidating Account general ledger has a loan receivable balance of $31 thousand. This includes a loan pending closure. This loan is being carried at 100% bad debt allowance.

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Last Updated on: February 02, 2007