Bank Guarantees - Leasing
Leasing is not really the correct term to use, as it is not possible to actually rent a bank guarantee in this way. It is an inappropriate term. We use the term loosely as its process is almost exactly that of commercial leasing. In effect, the Provider offers temporary ownership of its assets to the Beneficiary in exchange for a fee and at the end of the term the assets revert to the Provider's property. The assets are used to raise specific, non-transferable bank indemnities that the Beneficiary can use.
We are a family owned and operated business.
It is an inappropriate term as in effect no leasing occurs. Through a Guarantee Transfer Agreement, a Provider will agree to place its assets with a facilitating bank.
The bank will charge the asset and take a bank indemnity against it in favor of the Beneficiary. This bank indemnity will normally be in the form of a Bank Guarantee issued specifically for the purpose of the Beneficiary.
We are a family owned and operated business.
Collateral Transfer or Collateral is the provision of assets from one party (the Provider) to another party (the Beneficiary) under a Collateral Transfer Agreement. The Provider will effectively "rent" its assets to the Beneficiary for a specified period, for a rental or collateral fee.
Typically, the term of 'lease' would be 1 year, but this can often be as much as 3 or 5 years, depending on the supplier's wishes.
We are a family owned and operated business.
At the end of the term, the Beneficiary will return the security or allow it to expire and indemnify the Provider against any losses that may be caused by the Beneficiary using the guarantee or raising credit against it while it is in its possession.
We are a family owned and operated business.
The Guarantee Transfer Agreement will regulate the conditions of the transaction, that is, the Beneficiary agrees to extinguish any guarantee or credit raised against the Bank Guarantee before its expiration. The Beneficiary will arrange for loans secured against it to be repaid at the end of the Agreement.
We are a family owned and operated business.
Therefore, the Bank Guarantee received by the Beneficiary is a Bank Guarantee issued for its intended purpose (for credit lines, security, etc.). It should not be considered as a "leased bank guarantee". Only the underlying assets of the Provider are actually being leased (by definition of the word). This means that the credit guarantee (or monetization) of these bank guarantees is in no way different from credit in line with other bank guarantees issued for the purpose of obtaining credit.
We are a family owned and operated business.
Collateral transfer, therefore, is an effective way for providers to earn more revenue from their assets and for beneficiaries to increase bank credit.