Monetising a SBLC
Monetising a SBLC
Apart from Trade Finance, a company can monetise a Standby Letter of Credit which is governed by ICC Uniform Rules for Demand Guarantees, (URDG 760), as both instruments use the same strict and precise verbiage, allowing the Beneficiary to apply for loans and lines of credit, referred to as Credit Guarantee Facilities. The underlying conditions of this transaction replicates that of a Leased Bank Guarantee, where the company that owns the asset, (the Provider), instructs their bank, (The Issuing Bank), to transfer, for a limited period, a Standby Letter of Credit, to another bank (The Receiving Bank) favouring their client, (the Beneficiary). The provider will reclaim ownership upon expiry of the Standby Letter of Credit.
To understand fully the process of a leased Standby Letter of Credit transaction, please go to “What Is a Leased Stand-by Letter of Credit” where the transaction, apart from the instruments, remains the same.
When offered a choice of monetising a Standby Letter of Credit or a Bank Guarantee, monetisers will favour a Bank Guarantee as it is non-transferable, whilst the Standby Letter of Credit is a transferable instrument. The LTV, (Loan to Value), for both instruments is exactly the same, however the exact figure will depend on the contingent liability, of the underlying transaction.
It is important to note the main difference between a Documentary Letter of Credit, (DLC), and a Standby Letter of Credit (SBLC). Payments under the terms of a DLC are conditional on performance by the supplier, whereas payment under the terms of a SBLC are conditional on non-performance of the buyer. It is necessary to point out that a Bank Guarantee is a security for a payment, and whilst both a SBLC and a DLC are a means of payment, when a SBLC is monetised, then it to becomes a security for a payment.
IntaCapital Swiss, are providing more and more companies with access to Credit Guarantee Facilities, by utilising their cutting-edge product the Collateral Transfer Facility, which employs both Bank Guarantees and Standby Letters of Credit.