Is Collateral Transfer right for your business?
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Collateral Transfer involves the transfer of assets from one party to another, typically facilitated through a Bank Guarantee. This transaction occurs when the provider commits to issuing a Bank Guarantee to the beneficiary, receiving a Contract Fee as compensation for the rental or return of the assets. The entire process is formalized through a Collateral Transfer Agreement, outlining the terms and conditions governing the issuance of the Guarantee between the involved parties.
A Provider will often be a collateral management firm, a hedge fund or private equity company. Effectively, the Guarantee is ‘leased’ to the Beneficiary as a form of investment since the Provider receives a return on his 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.