A Collateral Transfer or C/T Facility, is the technical term for a Leased Bank Guarantee which has been incorrectly referenced for many years. This, as many experts have confirmed is due to the similarity between a C/T Contract and a commercial leasing contract. However, the term Leased Bank Guarantee has been used for so long, it has been accepted as a correct form of reference.

The C/T Contract utilises Leased Bank Guarantees as a simple avenue for raising lines of credit or loans, referred to as Credit Guarantee Facilities, for companies seeking additional capital or credit for their business. In these circumstances a Demand Bank Guarantee is required. The owner of the asset, (The Provider), instructs their Bank (The Issuing Bank), to transfer a Bank Guarantee to the Beneficiary’s bank, (The Receiving Bank). The Beneficiary will pay the Provider a contract fee to receive the Bank Guarantee on their account for a temporary period (usually one year), and on expiry, ownership will revert to the Provider.

The C/T Facility is a unique product in so far as part of its function is equipped with a data-base of Providers, negating any problems companies may have in sourcing a Provider. Due to the size of their balance sheets, Providers such as Sovereign Wealth Funds, Family Offices and Hedge Funds, are able to allocate resources such as cash, commodities and bonds as collateral for issuing Bank Guarantees.

There are many non-tradeable assets in the financial markets, including the Bank Guarantee, which as with similar asset classes carries no credit rating. Bank with strict credit criteria, stipulate that Bank Guarantees must be compared with credit ratings of the Issuing Banks, and if the rating is below investment grade, will find it difficult to approve Credit Guarantee Facility applications. However, an overwhelming number of banks ignore credit ratings and look at the track record of Issuing Banks honouring calls on their Bank Guarantees. A good track record will enable the bank to approve Credit Guarantee Facility applications.

Some of essential components, such as the Lender, the Provider and the Beneficiary, that make up the Collateral Transfer Contract, together with the due diligence service of the banks representing the Provider and the Beneficiary, provide a unique and successful combination, for a successful conclusion to C/T Contracts.