What does it mean to ‘Lease’ a Standby Letter of Credit?

A secure Line of ‘Leasing’ Bank Guarantees (BG) or ‘Leasing’ Standby Letters of Credit (SBLC’s) are common phrases associated with Collateral Transfer. However, ‘leasing’ is not really the correct term to use as it is not possible to actually ‘lease’ a Bank Guarantee in this manner, hence it is a misnomer.

We use the term loosely as its process is almost exactly that of commercial ‘leasing’. In effect, the Provider offers temporary ownership of assets to the Beneficiary in return for a fee and at the end of the term, the assets revert back to the ownership of the Provider. The assets are used to raise specific and non-transferable bank indemnities which the Beneficiary may utilise.

Is ‘Leasing’ a SBLC the same as ‘Leasing’ a Bank Guarantee?

The use of the term ‘leasing’ Bank Guarantees is inaccurate as in effect no ‘leasing’ takes place. Through a Collateral Transfer Agreement, a Provider will agree to place the assets with a facilitating bank. The bank will charge the asset and will raise a bank indemnity against it in favour of the Beneficiary. This bank indemnity will commonly be in the form of a Bank Guarantee issued specifically for the purpose of the Beneficiary.

These Collateral Transfer facilities are useful for when a business needs to import or create security (collateral) to underpin credit lines or loans, otherwise referred to as monetisation.

Who is a ‘Provider’ of Collateral Transfer?

A Provider will often be a collateral management firm, a hedge fund or a private equity company. Effectively, the Guarantee is ‘leased’ to the Beneficiary as a form of investment since the Provider receives a return on commitment, hence the misnomer of the term ‘leasing’.

Over recent years, these facilities have become more popular since they enable the Beneficiary to have access to substantial credit facilities by using the Guarantee as loan security. Since the Guarantee is effectively imported to the account of the Beneficiary, the underwriting criteria is considerably less than that of conventional lending.

Who can apply for Collateral Transfer?

Collateral Transfer is a dynamic way of raising high-level capital to finance commercial enterprises and specific projects. IntaCapital Swiss can facilitate Collateral Transfer for small, medium, and large corporations. Large corporations can benefit from €10 million and above Collateral Transfer facilities.

To find out more information about Collateral Transfer or to apply via IntaCapital Swiss, please get in contact with an expert to discuss your requirements. Alternatively, please apply using our Application Enquiry Service to submit your details.

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