Capitalization of interest refers to the practice of allowing the borrower to accrue interest due on principal disbursements made during the construction of a project, and then add the accrued but unpaid interest into the principal loan/guarantee amount. The interest that accrues after the starting point of credit (SPOC) will not be capitalized.
Project Finance: EXIM Bank generally offers IDC support for limited recourse project finance transactions because, prior to project completion, the project does not generate any revenue\ to pay accrued interest. Hence, IDC support is often a critical factor in a limited-recourse financing structure.
Special Programs: IDC is automatically available for projects that meet EXIM Bank’s criteria for having a beneficial impact on the environment (Environmentally Beneficial Exports | EXIM.GOV) and for medical equipment exports (Medical Technologies | EXIM.GOV) when there is an extended installation and/or construction period. Hence, IDC support is an incentive to both exporters and buyers, pursuant to EXIM Bank’s Environment Export Program and Medical Equipment Initiative.
Possible Exceptions: IDC for corporate finance transactions has also been allowed in the past on an exceptional basis. The factors taken into consideration when deliberating on whether an exception for IDC is appropriate include:
- The availability of such support from competing ECAs;
- If a U.S. exporter is bidding as part of a consortium, and all members of the consortium are offering capitalization of interest support;
- The significance of the U.S. exporter’s share of the project; and
- Whether the U.S. exporter is competitive with regard to price, quality, technical ability, and other market determined factors, thereby making IDC a critical competitive factor.
 As per the OECD Arrangement on Officially Supported Credits dated July 2023, Article 13 d). This generally refers to the starting point of commercial operation of a project in limited recourse project financings.
 Limited recourse project finance is debt financing based upon future revenue or cashflow supported by the project’s contractual structure.
 Corporate finance is based upon the financial strength of a borrower as reflected by their financial statements.