Collateral Transfer, for years, inadvertently and mistakenly referred to as a Leased Bank Guarantee, is a means by which a company (The Provider), can transfer ownership of a Bank Guarantee, for a temporary period of time, to another company, (The Beneficiary), upon expiry of which, ownership returns to The Provider. To facilitate the temporary transfer of ownership, the Provider and the Beneficiary enter into a contract, the Collateral Transfer Agreement.

Once the Collateral Transfer Agreement has successfully been through the due diligence process by the Providers bank, (The Issuing Bank) and the Beneficiary’s bank, (The Receiving Bank), the Beneficiary arranges to pay the Provider the Contract Fee, which is payment for borrowing the Bank Guarantee. The Issuing Bank arranges to transfer the Bank Guarantee to the Receiving Bank via the swift system, (“Society for Worldwide Interbank Financial Telecommunications”), using the swift message code MT 760, a dedicated medium for transferring Letters of Credit and Bank Guarantees.

It is the wording in the Demand Bank Guarantee, which is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758), and not the wording in the Collateral Transfer Agreement, that governs the use of the Demand Bank Guarantee by the Beneficiary. The Beneficiary in most cases, will use the Bank Guarantee as security for a bank loan or a line of credit often alluded to as Credit Guarantee Facilities.

Collateral Transfer has become available to smaller companies, due in no small fact to IntaCapital Swiss, negotiating a reduction in fees with the Providers, usually Hedge Funds, Sovereign Wealth Funds, Private Equity Funds and Larger Family Offices.

It has now become the singularly most popular medium for raising collateral for companies seeking access to Credit Guarantee Facilities, loans and credit lines, which in the past have been denied to them, due to lack of security.