Our Collateral Transfer (Renting) services provide a cost-effective and secure way to meet your financial requirements. We partner with our Global Network of Investors to provide Bank Guarantees and Standby Letters of Credit (BGs & SBLCs) at competitive rates. Our services help you to minimize the risk of default and ensure the security of your investments.
COLLATERAL RENTING (LEASING);
We provide our clients with Collateral Transfer facilities (or Lease Bank Guarantees) as they often need urgent funding and lack adequate security to borrow it conventionally.
In other instances, they need to raise large sums of funding to enter into trade positions or to temporarily support large commercial transactions like buy/sell contracts or for use as security.
Therefore, Collateral Transfer (or Bank Guarantee leasing) can be used for;
Securing Loans and Credit Lines
Security for other credit facilities such as trade finance
Surety and other third-party financial commitments
Trading and overdraft security
Similarly, there are a wide range of reasons why our clients chose to open Collateral Transfer facilities and receive Bank Guarantees;
Security for short to mid-term loans
Project Finance up to 5 years in term
Commodity contracts and buy/sell or sell/buy positions
Trade programs and investment
contrast with traditional asset-based lending and project finance, Collateral Transfer Financing serves as a viable solution for borrowing large amounts of funding swiftly and without the need for intense underwriting and credit status searches.
WHY COLLATERAL LEASING?
Collateral Transfer encompasses the term 'lease' or ‘leasing’ as a descriptive term. Whilst it is not possible to physically lease a Bank Guarantee (BG) or Standby Letter of Credit (SBLC), see WHY LEASING is possible to effectively import these bank instruments (BG’s and SBLCs) on a ‘rental’ basis.
Bank Guarantees are methods to secure or guarantee payment. They are commonly used as Credit Facility Guarantees to secure or underpin credit lines, loans and other forms of credit advancement. Equally, SBLC’s (or Standby Letters of Credit) are used for the same purpose, although a Bank Guarantee is better suited for the job.
Bank Guarantees can be effectively ‘rented’ from a third party known as a ‘Provider’. Providers are often large private equity companies, hedge funds and wealthy family offices. They enter into Collateral Transfer Agreements with entities that wish to ‘borrow’ or ‘rent’ security in the form of a BG or SBLC. The Provider will pledge his assets (cash, gold, liquid stocks and shares, etc.) with his bank and instruct the issuance of a BG or SBLC to the recipient in return for a Contract Fee (or ‘rental’ payment) generally on an annual basis. The recipient will indemnify the Provider against loss and will therefore agree to settle any loans or credit secured on the Guarantee prior to its expiry. As there is a ‘promise’ to remove any encumbrances or effectively to ‘return the Guarantee at expiry’ it resembles the act of leasing, hence the term ‘leasing of Bank Guarantees’.
The parties to this transaction are the Provider and the Recipient. Their respective banks and bankers are not parties to the Collateral Transfer Agreement as they will simply “accept instructions” from both parties. The Issuing Financing Firm will act for the Provider and take his instructions; the Recipient Firm or Bank will act for the Recipient in accordance with his instructions. Banks do not directly enter into these facilities as the assets underpinning the whole transaction belong to a third party outside the bank (i.e. the Provider). The Recipient Financing Firm may offer credit to the Recipient against the incoming Guarantee. However, the Recipient Firm or Bank will have no other role than to receive the Guarantee and accept it as security for any credit granted to the Recipient or Beneficiary of it.
There are several new private corporations being formed specifically for collateral management. We may see in the next few years, private banks offering these services by utilizing their own balance sheets to make such commitments. Currently, they are not included in the bank balance sheet. The guarantee is therefore not issued based on the bank's strength or rating. All Guarantees issued under this arrangement are for ‘value received’ and therefore the bank rating is not so consequential.
Based on their own experiences.
A Recipient Firm or Bank can determine the strength of the incoming Guarantee based on the Issuing Bank's ability to honour its payments. As Bank Guarantees cannot be purchased, sold or traded in any way, bank ratings are not attached to the instrument.
Recipients of Bank Guarantee or indeed SBLC’s have a specific purpose and requirement. The Guarantee is therefore worded for such purposes, i.e. to secure a credit or loan or to secure (third party) performance or Contractual Obligations.