The Bank Guarantee market continues to expand exponentially year on year, with a significant sector of this market being the Leased Bank Guarantee. Many financial experts will correctly advise that the word Leased is a misnomer and is derived from the similarities between a Collateral Transfer Contract and a commercial leasing contract. The technical name for Leased Bank Guarantees is Collateral Transfer or C/T Facility. The C/T facility allows the Provider, (the owner of the asset), to transfer via their banker, (The Issuing Bank), a Bank Guarantee, to another bank, (The Receiving Bank), in favour of their client, (The Beneficiary).
The Provider and the Beneficiary will enter into a contract, under the terms of which the Beneficiary will pay the Provider a contract fee for the use of the Bank Guarantee, usually for a set term of one year. In essence, the Provider transfers, for a temporary period, the ownership of the Bank Guarantee to the Beneficiary. At the expiry date or the end of the term, the Bank Guarantee will revert back to the ownership of the Provider. In the event the Beneficiary wishes to utilise the Bank Guarantee to raise a loan or line of credit, commonly known as Credit Guarantee Facilities, The Provider will have to instruct the Issuing Bank to transfer a Demand Bank Guarantee.
A Beneficiary is able to obtain via the C/T Facility, a Leased Bank Guarantee from a variety of different sources referred to as Providers. The sources are companies of good standing and are usually Hedge, Private Equity or Sovereign Wealth Funds, Family Offices and International Corporations, with balance sheets that allow them to invest part of their asset group into the Bank Guarantee market.
Bank Guarantees do not carry credit ratings, (as they cannot be bought or sold), and are credited to the Beneficiary’s account “Value Received”. In some cases, banks will check the credit rating of the Issuing Bank, and if it is non-investment grade will more than likely reject loan and credit line applications. However, many Banks will ignore credit ratings and rather examine the Issuing Banks track record in reimbursing those Bank Guarantees that have been called. An excellent record will allow the bank to approve loans and lines of credit.
The Collateral Transfer or C/T Facility has for many years now provided unique access to loans, capital injections and lines of credit – For more information surrounding this facility, see IntaCapital Swiss, a CT Facility provider. In order for these transactions to proceed smoothly, the Issuing Bank and the Receiving Bank will provide expert due diligence to ensure a satisfactory conclusion.