A definition of Collateral Transfer, often incorrectly alluded to as a Leased Bank Guarantee or Leasing Collateral Transfer, can be the signing of a Collateral Transfer Agreement, whereby a company, (the Provider) the owner of collateral, usually a Demand Bank Guarantee, agrees to temporarily transfer the ownership of the collateral to another company (the Beneficiary). The ownership of the collateral reverts to the Provider at the end of the agreed period.
The Providers bank, (The Issuing Bank), and the Beneficiary’s bank, (The Receiving Bank), both agree to provide due diligence on the Collateral Transfer Agreement, upon successful completion of which, the Beneficiary will transfer funds to the Provider, representing the Contract Fee for the loan of the Bank Guarantee. The Issuing Bank, upon instructions received from the Provider, will transfer the Bank Guarantee by the swift system, (“Society for Worldwide Interbank Financial Telecommunications”), using the designated swift message MT 760, dedicated to sending Letters of Credit and Bank Guarantees.
The ICC Uniform Rules for Demand Guarantees, (URDG 758) govern Demand Bank Guarantees, and as such, the strict verbiage contained therein cannot be impacted by the Collateral Transfer Agreement, thus allowing the Beneficiary use of the Bank Guarantee for an array of business activities. It is common practise for the Beneficiary to use the Demand Bank Guarantee as collateral for a loan or a line of credit, usually referred to as Credit Guarantee Facilities.
The Provider is a main component of Collateral Transfer and IntaCapital Swiss, with their global reach and contacts, have persuaded some Collateral Providers, (Hedge Funds, Sovereign Wealth Funds, Private Equity Funds and larger Family Offices), to reduce the cost of obtaining collateral such as a Demand Bank Guarantees, making loans and lines of credit so much easier to access, especially for the smaller company.
To obtain credit facilities in today’s market is becoming so much harder as banks demand more and more security. Collateral Transfer, and the Collateral Transfer Facility, through the use of Demand Bank Guarantees, has made the accessibility of Credit Guarantee Facilities that much easier for large and small companies alike.