Securities Borrowing and Lending for your Credit Enhancement
This enables the emission of genuine Bank Guarantees and SBLCs backed by Cash and Securities.
Borrowing and Lending Financial Instruments backed by highly rated Securities is probably the only way to obtain a valid Standby Letter of Credit, or Bank Guarantee for your credit enhancement. Financial Instruments from Euro 15 million to Euro 1 billion are generated and emitted, backed by highly rated Certificates of Debt (listed and rated Securities), which can be MTN, Bond, an Europaper, or a Commercial Paper and can be delivered (also) in the form of a Bank Guarantee (BG), or Standby Letter of Credit (SBLC) backed by such high rated debt instruments. The emission and transmission is via SWIFT MT760 by the Provider's banks HSBC, Deutsche Bank, Standard Chartered Bank, Barclays, UBS AG and Credit Suisse AG.
Here is the Deal!
1. You order a bank instrument (SBLC or BG) for Euro 15 million up to Euro 1 billion backed by highly rated securities.
2. The Provider (a Securities Dealer) will buy a Security on the Secondary Market for your transaction in the respective amount.
3. On the back of the Security he issues a fully cash backed Bank Guarantee or a Standby Letter of Credit and sends it to your bank for your beneficial use.
4. Your bank pays only the service fee for the use of the instrument for one year.
5. After one year your bank guarantees to return the instrument unencumbered or you renew the service which can be for up to 4 more years.
Reserving the back-up Security: On the Secondary Market, which is the main security trading place with the highest turnover, a Call Option is placed for a specific high rated debt instrument. This reserves the right to purchase the instrument within 20 days at a specific purchase price.
Contracting with the collateral Borrower: A Global Master Securities Lending and Borrowing Agreement is issued and executed. This spells out the purchase of the security by the provider and lending the beneficial use of the instrument to the beneficiary/client, the borrower.
Payment of the leasing fees: Within these 20 days, the agreed conditional lease payment instrument (for example, a Letter of Credit) has to be sent to the provider’s bank. Once received, the provider buys the security, places it in his securities account and simultaneously leases the beneficial use of the security to the beneficial/client. Against the transmission of the security to the beneficiary/client’s bank, or an SBLC or Bank Guarantee backed by a particular security, the lease payment is released by the receiving bank to the provider. The client has the beneficial use of the financial collateral for one year with the possible option for up to 5 years. At the end of the agreed term, the receiving bank has to return the financial collateral unencumbered.
How to start the Application Process?
This Application Process is great if you need us to help you to get the support of your bank to obtain a fully cash backed SBLC or Bank Guarantee backed up by highly rated, publicly listed securities.
Step 1: The borrower submits his Application and Client Information Sheet and requests an offer in the form of a personalized Global Master Security Lending and Borrowing Agreement (GMSLBA) to lease an instrument. Upon a most complete application an offer in the format of a personalized Global Master Security Lending and Borrowing Agreement (GMSLBA) will be issued and sent to the Applicant.
Step 2: The borrower presents the draft of the Global Master Security Lending and Borrowing Agreement to his bank and negotiates acceptance of the securities borrowing transaction and the payment method.
Step 3: Once the borrower has the agreement of his receiving bank, the client submits his Letter of Intent. (Suggested LOI verbiage will be a part of the personalized GMSLBA)
Step 4: The final and fully completed original copy of the Global Master Security Lending and Borrowing Agreement (GMSLBA) will be issued and sent for signature, together with an invoice for the expenses due to cover the Call Option fees.
Here is how to apply if your receiving bank is already aware of this type of credit enhancement: In that case you might want to consider the transaction based on a Business Support Contract as described here.