No. A Collateral Transfer Facility does not constitute a loan or extension of credit by the provider. Instead, it is a temporary transfer of collateral rights, usually against the payment of a contract / facility fee. The recipient does not borrow funds directly from the provider but may use the instrument to raise capital from third-party lenders.
Collateral Transfer involves the issuance of a Bank Guarantee by a third-party Provider, which the client can use as security to obtain financing. Unlike traditional bank loans, where the bank assesses the borrower’s creditworthiness directly, Collateral Transfer allows clients to enhance their credit profile by presenting a Bank Guarantee as collateral.
This method can be particularly advantageous for clients who may not meet the stringent lending criteria of conventional banks.
The instrument (e.g. SBLC or BG) is issued by a regulated bank, instructed by the Collateral Provider. The bank acts as the issuing entity, while the economic risk and instruction authority originate from the Collateral Provider. Only institutions with the requisite SWIFT capabilities and regulatory approval may issue such instruments.
Yes, clients can monetize the Bank Guarantee by presenting it to their bank or a third-party financial lender to secure a loan or line of credit. The monetization process involves the lender evaluating the Bank Guarantee and, upon acceptance, providing funds against it. It’s important to note that the terms of monetization, including the loan amount and interest rates, are subject to the policies of the lender involved.
Collateral Transfer is widely used by corporates, project sponsors, trade entities, and family offices that need credit enhancement or non-traditional funding solutions. It is especially suitable for clients who may not meet the stringent collateral or equity contribution requirements of conventional lenders.
The costs for Collateral Transfer Facilities are determined based on various factors, including the value of the Bank Guarantee, the duration of the facility, and the risk assessment of the transaction. Typically, clients can expect to incur:
• Contract (Facility) Fee: A fee charged by the Provider for issuing the Bank Guarantee.
• Booking Fee: A fee for structuring and managing the facility, payable to AAA.
• Legal and Administrative Costs: Expenses related to the drafting and execution of legal documents, as well as administrative processing.
All fees and costs are transparently disclosed and agreed upon before the commencement of the facility.
While the instrument is freely assignable, not all receiving banks accept third-party issued guarantees for credit purposes. It is critical for clients to confirm in advance that their bank accepts bank-issued SBLCs/BGs under collateral transfer terms, and that the issuing institution meets the bank’s internal risk and compliance criteria.
At the end of the term – typically 12 months, with options to extend – the instrument is automatically returned or expires, unless otherwise renewed. If used as collateral for a loan, repayment of the underlying facility is expected prior to the instrument’s expiry to avoid default-related complications.
All parties – including the provider, client, and issuing bank – operate under confidentiality agreements and non-disclosure protocols. Transaction documentation is protected under client privilege and structured to ensure non-disclosure of sensitive financial strategies, identities, or end uses unless disclosure is required under applicable laws or regulatory frameworks.