Non-Payment Insurance

Matrix’s proprietary Non-Payment Insurance, a form of credit insurance, represents a finely tuned instrument of financial protection. At its core, it offers a shield against the adverse consequences of non-payment by contractual counterparts. This coverage ensures that you receive the agreed-upon sums outlined in a specific contract, even if your counterparty fails to meet their obligations.

Non-Payment Insurance offers security and financial resilience. It empowers businesses to engage in agreements and collaborations with confidence, secure in the knowledge that they possess a contingency plan against unfunded events or adversities.

Unlike certain insurance forms, Non-Payment Insurance provides protection independent of the financial stability of the contractual partner. It offers coverage irrespective of whether the counterparty is in a stable financial position, or navigating financial turbulence or facing an operational delay.

Non-Payment Insurance remains unaffected by credit rating downgrades or conservatorship of the counterparty. You can collect even if your counterparty is not downgraded or liquidated.

Crucially, it’s imperative to differentiate Non-Payment Insurance from contractual guarantees or financial swaps. It is fundamentally an insurance policy with distinct prerequisites for activating coverage. It is a tax deductible expense, not a capital item.

NPI broadly fall into three categories:

High-credit, developed market projects, often with at least implicit quasi-sovereign or multi-lateral backing, requiring a simple insurance wrapper to demonstrate a clean package to lenders.

Higher-risk transactions can be properly defeased through underlying (re)insurance and provision of collateral. This cover is effectively financial engineering, bundling a range of risks and recoveries into a similarly clean package—creating “debtquity” via an insurance contract.

Basel III compliant Non-payment insurance policies offered by A-rated insurance companies are a viable source of investment-grade, unfunded risk capacity, and risk protection for project finance lenders.

Non-Payment Insurance transcends a one-size-fits-all approach. It is adaptable to an array of circumstances and client specifications.

Single Parent Insureds

For single parent insureds, credit ratings issued by prominent agencies such as S&P, Moody’s, and Fitch wield significant influence in risk evaluation. In instances where major ratings are absent, a synthetic rating matrix comes into play. This matrix assesses the seniority of unsecured debtors and their influence on risk.

Special Purpose Vehicles (SPVs) and Multi-Parent Insureds

Special Purpose Vehicles (SPVs) are prevalent in Non-Payment Insurance programs. They may function either as insured entities or borrowers, debtors, or lessees. In both instances, rigorous underwriting and meticulous policy construction are paramount.

Principal Protection for Investment Funds

Investment funds, regardless of their organizational structure, can derive substantial benefits from Non-Payment Insurance:

LPs, LLCs, or SPVs

Investment funds structured as Limited Partnerships (LPs), Limited Liability Companies (LLCs), or SPVs can secure their principal investments through Non-Payment Insurance.

Mitigating Political and Sovereign Risks

Non-Payment Insurance possesses the capacity to mitigate political and sovereign risks, including expropriation and currency inconvertibility. Sovereign credit ratings significantly impact coverage determinations.

NPI Policies are flexible in design and offer a range of durations, settlement processes and attachment points.

Case Study

One recent case study is a $300 million agricultural project in a country with a CCC+ rating on the sovereign debt, and perceived to be exposed to major political risk. Using a variety of underyling risk mitigation tools, and collateral available from a well-funded project sponsor, Matrix was able to engineer a comprehensive solution that wrapped the entire bond financing with an A-rated credit backstop. The lower cost of funding far more than offset the cost of the premium for NPI.