Advice Centre

When a private equity firm or other types of funding institutions make an investment into companies on an international platform, several laws come into play. If an equity company made an investment (or indeed a loan) into a company outside of their own jurisdiction (i.e. they physically lent funds in a different country), they may need Government permissions, licenses and other forms of financial authority registrations in that jurisdiction in order to make such investment or lending commitment.

A Provider is the party who enters the Collateral Transfer Contract (or the Collateral Transfer Agreement, “CTA”) with the Principal or Recipient. A Provider will typically be a private equity firm, a hedge fund or wealth manager or indeed a family office, managing funds on behalf of their clients or investors.

The word ‘leasing’ when regarding to Bank Guarantees and Collateral Transfer is a misnomer and should be avoided…

Collateral Transfer facilities you will often find are offered in terms of 12 to 72 months, working on a renewable 12 month contract…

The ‘medium’ refers to the actual bank instrument used to convey the commitment to the Recipient of the Collateral Transfer facility…

Collateral Transfer facilities provide an ideal solution to many circumstances. However, it is important to note that these facilities are not cheap and may not suit the smaller budget…

9 times out of 10 clients that apply to receive a Bank Guarantee or Standby Letter of Credit through Collateral Transfer are doing so with the intention of raising credit or loans…

Once the Principal has successfully received their collateral and have negotiated a line of credit against it, they are now in possession of short to mid-term business capital…

Collateral Transfer facilities are commonly, and more importantly, are wrongly referred to as Bank Guarantee ‘leasing’ as this document will explain. Despite, the injection of capital or collateral is made by the Provider to the Recipient via the Issuing Bank and the Recipient Bank, there is actually never any mention of the word ‘lease’ or ‘rent’….

How does renewal work and what are the renewal rates / costs? Collateral Transfer facilities are issued for 12 month periods and multiples thereof. However, most facilities are offered initially as 12 month contracts with an option to renew for a further 12 months (year on year), up to a maximum of 60 or 72 months…

Collateral Transfer facilities provide an excellent model for short to mid-term financing and solutions for raising capital. However, they are not the be-all and end-all solution to longer term business or project finance…

As Collateral Transfer facilities are founded on the injection of an inter-bank financial instrument (Bank Guarantee or Standby Letter of Credit) from the Provider’s bank to the Recipient’s bank, the transaction relies on both banks talking to each other…