Collateral Transfer & BG’s

Mistakenly referred to as a Leased Bank Guarantee, the Collateral Transfer Facility, is the means by which one company, (The Provider) loans collateral, usually a Demand Bank Guarantee, to another company, (The Beneficiary), for a temporary period of time, the ownership of which reverts to the Provider on expiry of the Bank Guarantee. The Provider and the Beneficiary enter into a contract, the Collateral Transfer Agreement, and both the Provider’s bank (The Issuing Bank), and the Beneficiary’s bank, (The Receiving Bank), exercise due diligence ensuring a smooth passage for all parties.

Once both banks have finished their due diligence, the Beneficiary will pay a fee to the Provider, referred to in the Collateral Transfer Agreement as The Contract Fee, and represents payment for temporary ownership of the asset. The Issuing Bank will transfer though the SWIFT system, a Demand Bank Guarantee to the Receiving Bank for credit to the account of the Beneficiary. The SWIFT system, (“Society for Worldwide Interbank Financial Telecommunications”), uses the message code MT 760, which is a dedicated SWIFT message for the transmitting of Letters of Credit and Bank Guarantees.

The Demand Bank Guarantee is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758), and the wording contained therein is not affected by the Collateral Transfer Agreement, leaving the Beneficiary to utilise the Bank Guarantee for whatever purposes they deem fit. The Beneficiary will usually offer their bank the Demand Bank Guarantee as security to obtain a loan or a credit line, often alluded to as Credit Guarantee Facilities, (See More Information).

The Providers, usually large Family Offices, Sovereign Wealth Funds and Hedge Funds, are now offering assets for Collateral Transfer at very competitive prices. Underpinning this facility is the highly rated and increasingly becoming a popular financial product offered by IntaCapital Swiss, offering access to bank loans and lines of credit, which can now be accessed by not just the larger companies, but to the smaller companies as well.

Collateral Transfer has become a most sought after medium for obtaining loans and credit line facilities, and without this unique product, many companies who are today enjoying the benefits of Credit Guarantee Facilities would be struggling or would indeed have gone bankrupt.