IntaCapital Swiss in the Aviation Industry
For over a decade we have been providing access to capital for companies who are finding it difficult to raise loans and lines of credit from traditional sources.
Our dedicated management team at IntaCapital Swiss have a unique knowledge of global markets. Our most popular financial product, which is in constant demand is our Collateral Transfer Facility. This facility has provided cash-starved companies across the globe access to fresh capital be it a loan or lines of credit.
Aviation Collateral Transfer
What is Collateral Transfer? To many companies who have not heard of Collateral Transfer, they may well have heard of leased bank guarantee, which is a very common phrase used in finance circles daily. However, Collateral Transfer is the correct technical wording for leased bank guarantee, which is the transfer of a Demand Bank Guarantee from one company to another.
If a bank refuses to underwrite the cost of a private jet for a company, then IntaCapital Swiss can offer access to the necessary capital to purchase the aircraft. IntaCapital Swiss have a database of Providers, usually hedge funds or private equity funds who are happy to provide Demand Bank Guarantees to the Collateral Transfer market.
Those companies looking to raise capital (referred to as a beneficiary), will after successful due diligence, be asked to sign a Collateral Transfer Agreement with a provider. They will have to pay a fee to the provider for the use of a Demand Bank Guarantee which is commonly referred to as the Collateral Transfer fee. Once the fee has been received the provider will instruct their bankers to transfer a Demand Bank Guarantee to the account of the beneficiary.
Financing a Demand Bank Guarantee
A Demand Bank Guarantee can be used for many purposes such as an advance payment guarantee or a customs guarantee. Many companies are unaware that a Demand Bank Guarantee can in effect be turned into cash via a loan or line of credit.
The International Chamber of Commerce ICC was set up many years ago to assist in cross border trade and finance. Now based in Paris, it has over 40 million members, including banks in over 200 countries. Whilst not law, the rules and regulations laid down by the ICC are adhered to by all members, including rules for Demand Bank Guarantees.
A Demand Bank Guarantee is subject to the verbiage contained within the format. Therefore, for a Demand Bank Guarantee to be used as security for a loan or a line of credit the verbiage must be so precise that any lender will be completely covered in the event of a default. The rule the ICC has laid down for Demand Bank Guarantee is known as the Uniform Rules for Demand Bank Guarantees, (URDG 758) and all banks adhere to this rule.
Once the Demand Bank Guarantee has been applied to the beneficiary’s account, they may request a loan or line of credit from their bank offering the Demand Bank Guarantee as a security for any credit facilities that may be granted. The bank now has a Demand Bank Guarantee as collateral for the loan, and the company may now go and buy the requisite aircraft. The provider will lien the aircraft in the event the Demand Bank Guarantee is called.
Since the global pandemic started the airline industry has lost an estimated USD118 billion net. Most of 2020 saw airlines going out of business, some being restructured, rentals being deferred, government bailouts and debt raising. Many banks have withdrawn from financing the aviation market; thus, capital markets have become a vital source of cheap financing especially to lessors who were known to raise funds in the bond market in early 2021.
The general feeling is that purchases of aircraft are going to decline while leasing of aircraft will increase. This is due to the elevated level of borrowings that airlines are currently enduring, which effectively impacts their capital expenditure.
Whatever the state of the aviation market IntaCapital Swiss stands ready to help in securing new capital for clients, be it through Collateral Transfer or indeed syndicated loans which is yet another option available to their clients.