Collateral Transfer, popularly but incorrectly known as Leased Bank Guarantee, is the means by which, one company, (The Provider), can loan for a temporary period of time, an asset, usually a Demand Bank Guarantee, to another company, (the Beneficiary). Both companies enter into a contract, the Collateral Transfer Agreement, which undergoes due diligence by the Providers bank, (The Issuing Bank), and the Beneficiary’s bank, (The Receiving Bank).
Upon successful due diligence, the Beneficiary will remit funds to the Provider representing the Contract Fee for the utilisation the Demand Bank Guarantee. The Issuing Bank will, upon receipt of instructions from the Provider, transfer via swift, (“Society for Worldwide Interbank Financial Telecommunications”), the Demand Bank Guarantee to the Receiving Bank, using the swift message code MT 760, a dedicated code for transmitting Bank Guarantees and Letters of Credit.
The Collateral Transfer Agreement, which is the underlying agreement, does not affect the use of the Demand Bank Guarantee, which is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). Therefore, the Beneficiary is free to utilise the asset, which is often used to raise a line of credit or obtain a loan, commonly referred to Credit Guarantee Facilities.
Collateral Transfer utilises a myriad of Providers, ranging from Hedge and Sovereign Wealth Funds, to International Corporations and Larger Family Offices. Through the good offices of IntaCapital Swiss, Contract Fees for this facility have been reduced giving greater access to such facilities.
The emergence of Collateral Transfer onto the international credit markets has paved the way, not only for companies looking to increase their credit expose but for those companies looking to access Credit Guarantee Facilities either for the first time or because their bankers have rejected their credit applications.