"Applied Credit Enhancement in the Commercial Sector"

SECTION 1 - Probably the only way to get access to valid credit enhancement collateral


Applied Credit Enhancement in the Commercial Sector: When you do a quick Google search on “what is a credit enhancement in finance?” the result refers to some “financial engineering techniques which improve the Creditworthiness and Rating of the securities issued”. And if you check Wikipedia, then you will find “Credit enhancement is the improvement of the credit profile of a structured financial transaction or the methods used to improve the credit profiles of such products or transactions. It is a key part of the securitization transaction in structured finance, and is important for credit rating agencies when rating a securitization.”


Credit Enhancement in the commercial sector is different. When referring to Credit Enhancement in the commercial sector, banks lend money against financial instruments which have been generated for a specific purpose and period of time and can be borrowed from a collateral owner, usually an investor. This generates credit enhancement and leverages a client’s financial possibilities in an exponential way, backing up a credit line and enabling liquidity to build a project.


For the client’s bank the business is “round”. The bank issues a credit line that has the backing of a prime bank, evidenced in the form of a financial guarantee instrument. The project is building up collateral value by itself, as it advances towards completion. The client’s bank has zero risk in funding this commercial transaction which is very profitable to them. They will charge the client annual interests on the credit line as well commissions.


On the other hand, the bank is supportive and helps to build additional value as the client builds the project. Obviously, the funds go directly into the development of the project. As the project is building up to completion or a stage of operation, its own collateral value increases and the bank utilizes the increased collateral value to further extend the credit line. The project represents collateral value by itself. This also enables the replacement of third party collateral that has been borrowed and which will be obsolete once it is replaced by the project’s own collateral value.


Forget all what you have heard about leasing a bank instrument. Securities Borrowing and Lending is completely different. It is probably the only way that you can expect a third party to provide you with a valid, fully verifiable cash backed, divisible and assignable Bank Guarantee or Standby Letter of Credit. This is the only realistic and genuine option to have a third party issue a genuine financial instrument for a borrower who might not yet have the financial capacity and background. If your bank is supportive and asks you to provide collateral to support a loan, then Securities Borrowing and Lending is probably the only way in which you can access financial collateral and benefit from a prime bank instrument.


Securities and an Investor’s cash back up an SBLC or a Bank Guarantee.


Financial Instruments from Euro 10 million to Euro 500 million are generated and issued and backed by highly rated Certificates of Debt (listed and rated Securities), which can be MTN, Bond, an Europaper, or a Commercial Paper. These instruments are publicly listed, identified by an official ISIN (International Securities Identification Number) and are traded in the secondary market (Bloomberg, Euroclear, etc. ) These securities can be traced and checked online by the client and his bank. These seasoned Bonds and/or MTNs are purchased directly by an investor (the Lender) to be leant during the agreed upon period to the borrower. If the client needs a BG/SBLC, the lender will purchase the Bond/MTN and will issue a BG/SBLC backed by this Bond/MTN through his own bank (a top bank) for the borrower.

So here is the background of the deal!


High Net Worth Investors buy highly rated bonds and securities. The higher the rating of a bond, the lower is the yield of a bond obviously. Lower risk for an investor usually results in lower yields and Securities Borrowing and Lending can leverage the overall return on a highly rated security for an investor.


Where is the Lender's business?


Through a Securities Borrowing and Lending transaction, the investors’ annual return can be leveraged to a great extend! An investor buys specific securities and lends them out to a borrower, for example to you, in the format of an SBLC or BG for an agreed upon period of time. You pay a lending fee to the investor. This leverages the investor’s Return of Investment significantly. A top rated bond with an annual yield of 3% can now return probably 12% or more per annum. This is a more than optimal performance, with high security since the operation is carried out bank to bank against a prior commitment of the receiving bank for the payment of the lending fees as well as the return of the instrument at the agreed time.


Based on the purchase of clearly identified highly rated bonds, MTNs and other securities of an investor and a Securities Borrowing and Lending Agreement with you, your collateral instrument is generated and transmitted via SWIFT MT760 in the format of an SBLC or BG, to your receiving bank. There it can be used as a valid and verifiable form of collateral which you can use in any unrestricted way during the agreed upon lending term.


Procedures match exactly this scenario. With your application and the submission of a Business Support Contract, the process of the assessment of your transaction is started. Once you are accepted as a qualified borrower, specific securities are identified for your transaction and proposed to an investor. Once an investor commits to purchase these securities into his portfolio and to lend to your transaction, the Securities Borrowing and Lending Agreement is issued to lend these clearly identified securities to you.


To enable this process, the securities have to be reserved for the transaction for 20 days. Since these securities will specifically be purchased to enable your transaction, to emit your SBLC or BG, the deal has to be fixed and these clearly identified securities into the millions will have to be firmly reserved through the payment of a call option. Through the Securities Borrowing and Lending Agreement, the investor is committed to buy these securities and you will have to commit to borrow exactly these securities and pay for the agreed lending fee within 20 days. Once the Securities Borrowing and Lending Agreement is issued for these clearly identified securities, your bank will have to come up with the agreed payment instrument – within 20 days, and transmit the conditional payment as to the terms and instructions of the Securities Borrowing and Lending Agreement.


Once your conditional payment is received and verified directly between banks, the investor will buy the agreed securities for your transaction and send the SBLC or BG to your bank. Your receiving bank will have all the background information and can verify the instrument to be not just divisible and assignable, but also fully cash backed through the investor’s cash and generated on the back of the agreed securities. Once received and verified, your bank will release the conditional payment, for you to get the benefit of the Borrowing and Lending transaction for the agreed upon period of time. Prior to the expiry date, you return the instrument unencumbered, or you extend the Borrowing and Lending Agreement for another year on the same terms as agreed for the initial period.


When looking at Securities Borrowing and Lending transactions in the financial sector, this is a very acceptable and widely used concept. Just Google “Blackrock securities lending“. This will show you how  they describe and explain Securities Lending for their investors. This will also give you the explanation why Securities can be borrowed: Simply because investors make additional money without additional efforts. They leverage their own profits on the securities they lend.


The concept is as genuine as it is unique.


Forget about leasing a Bank Guarantee. Securities Borrowing and Lending is quite complex but genuine. It is simply not for the usual brokers on the internet trying to make a quick fortune. You will need to be qualified and have access to professional knowledge of experts and their expertise and experience with "Applied Credit Enhancement in the Commercial Sector” to structure and issue a Prime Bank Instrument in the format of an SBLC, a Standby Letters of Credit or a Bank Guarantee, to have it sent by major world banks via SWIFT MT760.


Since HNW investor with enormous cash holdings always have their accounts in Prime World Banks, the collateral Instrument that you can borrow and the investor will lend to you is supported by first class world banks and issued through banks like HSBC, Deutsche Bank, Standard Chartered Bank, Barclays, UBS, Credit Suisse, Commerzbank, BNP Paribas Bank and JP Morgan Chase.


Who can be qualified in the Commercial Sector?


Who can be qualified for Applied Credit Enhancement in the Commercial Sector? To benefit from this Credit Enhancement in the Commercial Sector a borrowing company will have to be of substance, qualified and acceptable. If a company is in need of additional liquidity financial collateral can be generated through applied Credit Enhancement also for companies in the Commercial Sector to trigger a credit line, back up a loan and access liquid cash. The service usually is available without any front fees for companies of substance, evidencing significant revenues for the past years through audited accounts.


Fundamental Requirements


If you want to access valid SBLC or BG collateral to back up a credit line, then you will need a bank, or several banks willing to work with you on this. They will have to offer you a credit line you can draw from, once the instrument arrives via SWIFT MT760. The borrowing and lending fee can be paid from that credit and your project can be financed by drawing from that credit line.


You need a bank willing to issue a conditional payment for the borrowing and lending fee.


This can be your own bank, the receiving bank, or a third party bank, regardless where your SBLC or BG is going to be stent to, a solution can be structured for your transaction accordingly. Only if you can get this conditional payment confirmation (the Essential Bank Payment Instrument) from an acceptable bank, you can benefit from this SBLC or BG collateral service.


Timing is of the essence in all aspects of this transaction!


The Bank Guarantee instrument will be valid for 365 days. It will be fully cash backed, divisible and assignable. During the agreed collateral borrowing and lending time, you will have the unconditional use of the Financial Instrument. It is a valid, fully cash backed guarantee which backs up your credit line and allows you to draw funds and finance your project. This fully cash backed collateral service can be renewed on an annual basis. The collateral borrowing and lending term expires 15 days prior of the maturity date of the Bank Guarantee or Standby Letter of Credit. At that time you can ask for an extension for another year, or have your bank return the financial instrument unencumbered.


If Securities Borrowing and Lending is a solution for you, then these would be the initial considerations


  • Get a Line of Credit confirmed at your own bank.
  • Apply to qualify to be approved and accepted to contract with the facilitator.
  • Your bank provides the essential conditional payment undertaking and communicates with the issuing bank.
  • The collateral bank instrument is sent to the receiving bank to verify and for the receiving bank to pay the lending fee.
  • You draw from your Credit Line, fund and start your project.

Section 2 - You have a bank willing to extend a Loan to you?

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Section 3 - You cannot expect a Professional Service without a Financial Commitment

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Section 4 - The Essentials when Borrowing and Lending Securities

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Section 5 - Securities Lending from a Securities Owner’s Perspective

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