Why are the Collateral Transfer Terms fixed annually?

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

Why are the Collateral Transfer terms set annually?

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

Due to the providers contracts with their investors being annual contracts producing an annual return, they are set as annual contracts often linked to 12 month LIBOR or EURIBOR rates.

As the Provider will enter into contract with several senior level investors for a fixed annual return, the Collateral Transfer rates (Contract Fee) will be set accordingly. Depicted as a fixed fee in the first year, often between 6% and 14% (depending on the provider). In the second year or upon renewal, it will be linked to either LIBOR or EURIBOR depending on the currency.

For this reason, one may find it difficult to receive a Collateral Transfer facility for other fixed periods of time, i.e. 18 months.