Often termed 'leasing' as the process is similar to conventional leasing contracts, Collateral Transfer involves two parties (each operating through their appointed banks).Leasing financial instruments and guarantee instruments are very much a modern solution to traditional security and credit issues. It involves the creation of bank securities such as bank guarantees, Stand-by Letters of Credit and other types of Bank Indemnities by the placing of tangible securities and liquid instruments such as cash, stocks and bonds with the bank.
Typically, a party who requires funding or credit and does not own suitable bankable security may choose to import ‘collateral’ under a ‘leasing’ type arrangement. This is where one party (the Provider) enters a contract with another (the Beneficiary) to provide collateral to a bank. This bank (the Issuing Bank) agrees to issue a bank indemnity (often in form of a Bank Guarantee) to the Beneficiary who may wish to raise collaterals for borrowing or require the instrument for other reasons.
As these types of bank indemnities (BG’s, SBLC’s are not possible to actually ‘lease’ parse, the act of receiving them for a given term and for the payment of a consideration that could be termed a ‘rental’. The act of providing an exit strategy (or method to return the instrument or indemnify the provider of it against loss) could effectively be called a lease as the party receiving the instrument (or collateral) has to return or indemnify it. This party does not own (nor get to own) the underlying collaterals deposited with the issuing bank and to which the instrument is secured. Although they shall be considered the legal beneficial owner of the instrument.
The party who provides the underlying collateral lodged with the issuing bank to which the instrument is secured is referred to as the Provider. The party who receives the leased instrument or guarantee is referred to as the Beneficiary. Between the parties will be the Facilitator who’s job is to arrange the Provision Contract between the parties and to convey the collaterals to the Issuing Bank and arrange delivery of the leased instrument.
When issuing bank instruments under this method, they are exactly the same instruments issued than would be in any other circumstance, meaning that reference to ‘leasing’ is not made therein and the bankers do not recognise that the instrument is ‘leased’ nor do they treat it in any other way than an instrument issued in a conventional way.
Each transaction is of course bespoke to the requirements of the Beneficiary and in accordance with the criteria of the Provider. Rates of leasing instruments in this manner can vary, however rates between 8% and 14% are common place. The larger the sums involved, the better the discount from the Provider and therefore the cheaper the cost.
Receiving Banks of the instrument will be more than happy to utilise incoming instruments as security for credits, loans and other commitments. Wording of the leased instruments will be set forth in the Provision Contracts provided.
Of course, each transaction is designed and tailor-made. At ICS, we have great experience in creating perfected solutions for both Providers of collateral and Beneficiaries / Borrowers, as well as facilitating credit against bank instruments.
Please contact us for more information at [URL]www.intacapitalswiss.ch/ct-facility/[/URL]
IntaCapital Swiss, Switzerland (Blvd Georges Favon, 43 RDC...