Monetisation of SBLC’s and BG’s
Monetisation of SBLC’s and BG’s
Monetisation is another popular use for the Standby Letter of Credit, and is governed by ICC Uniform Rules for Demand Guarantees, (URDG 760), and as such, the strict verbiage contained therein, is strikingly similar to those contained in a Demand Bank Guarantee. As a result, beneficiaries of these instruments can now apply to their banks for loans and lines of credit, also referred to as Credit Guarantee Facilities.
The mechanics and underlying conditions of this transaction run a parallel course to that of a Leased Bank Guarantee, and is where a company, (the Provider), requests their bank, (The Issuing Bank), to transfer for a temporary period, a Standby Letter of Credit to another company , (the Beneficiary), for credit to their account with their bank, (The Receiving Bank). When the time limit expires, the ownership of the Standby Letter of Credit reverts to the Provider.
For the full explanation regarding a Leased Standby Letter of Credit transaction, please go to “What Is a Leased Bank Guarantee”, as both transactions apart from the instruments themselves, are the same.
Many clients when offered the choice of monetising a Bank Guarantee, or a Standby Letter of Credit will take the Bank Guarantee option as monetisers prefer the Bank Guarantee as it is non-transferable. The net LTV, (Loan to Value), will be determined by the contingent liability, of the underlying transaction.
It is pertinent at this juncture, to point out the underlying difference between a Standby Letter of Credit, (SBLC), and a Documentary Letter of Credit, (DLC). Payment under the terms and conditions of a Letter of Credit is reliant on the performance of the supplier or seller, whereas under the terms and conditions of a Standby Letter of Credit, payment is reliant on the NON performance of the buyer. It is interesting to note that whilst a Standby Letter of Credit and a Letter of Credit are a means of payment and a Bank Guarantee is a guarantee of payment, where a Standby Letter of Credit is utilised for monetisation purposes, it also becomes a guarantee of payment.
IntaCapital Swiss, when offering access to loans and lines of credit, referred to as Credit Guarantee Facilities, to companies who cannot otherwise access these facilities, utilise their highly recommended Collateral Transfer Facility, which employs both the Bank Guarantee and the Standby Letter of Credit.
With access to cash and credit being more and more difficult obtain, IntaCapital Swiss can alleviate these problems through the use of a Collateral Transfer Facility, where the client can receive a Bank Guarantee on their bank account which can be used to obtain a line of credit.
It is common that most beneficiaries, having received the Bank Guarantee on their account, have applied for and successfully received from their bankers a line of credit. It has been noted that in a few cases beneficiaries have been unsuccessful with their credit line applications. Bank credit officers can decline a credit line application but this is part and parcel of banking today.
However, IntaCapital Swiss, as part of their dedicated service have the ability to arrange a credit line for their clients if their application to their bankers is turned down.