Collateral Transfer or C/T Contracts, are the technical definitions for the misnomer that is the Leased Bank Guarantee. The word misnomer is used advisedly, as Leased is assumed to have been derived from commercial leasing contracts, the contents of which are similar to C/T Contracts, under which the owner of the asset, (The Provider), instructs their bank, (The issuing Bank), to transfer the Bank Guarantee to the Beneficiary’s account held with their bank, (The Receiving Bank).
The C/T Contract is designed for the Beneficiary using a Leased Bank Guarantee as Security to apply for a loan or a line of credit referred to as Credit Guarantee Facilities, which require a Demand Guarantee. The Provider on receipt of the Contract Fee from the Beneficiary, transfers the Bank Guarantee to the Beneficiary for a temporary period or pre agreed term, usually one year, and on the expiry date of the Bank Guarantee, the ownership reverts to the Provider.
Utilising their asset classes such as silver, gold, cash reserves, bonds, MTN’s and other available assets, the Providers, (Hedge Funds, Family Offices, Sovereign Wealth Funds and other comparable institutions), are able to provide Bank Guarantees for use in the C/T Contracts.
It is a forgotten, and sometimes unknown fact that Bank Guarantees cannot be bought or sold, and are therefore devoid of credit ratings and are thus applied to the Beneficiary’s account for “Value Received”. Banks have to take this fact into account when deciding whether or not to approve a Credit Guarantee Facility application. The bank usually examines the Issuing Banks credit rating and if in the non-investment grade category will more than likely rejectthe application. A different approach is taken by many banks who check the history of the Issuing Bank’s record of reimbursing called Bank Guarantees. A good track record will result in a Credit Guarantee Facility application being approved.
It is a fact that without the Collateral Transfer Facility, many companies would flounder in todays tight credit markets. Utilising the Leased Bank Guarantee, and the excellent due diligence services provided by the Issuing and Receiving Banks, more and more Collateral Transfer Contracts are proving to be successful.