Bank Guarantees received under Collateral Transfer facilities may be used by the Beneficiaries to secure credit lines at their bank. Typically, a banker will have no objection to offering credit against Bank Guarantees received in this manner up to 100% of face value, less of course advance interest charges and bank fees.
However, typically lending rates (loan to value or LTV) will be around 80% to 90% of face value. The total credit term can be for the duration of the Guarantee, i.e. 1 to 5 years, but of course will not exceed the term (or expiry) of the Guarantee. The Guarantees that are issued under these types of facilities are worded specifically to secure credit lines. Guarantees are issued under ICC758 protocol and are readily accepted by all international and private banks. Often they are called ‘Letters of Guarantee’ or ‘Credit Facilities Guarantees’. It is important to note that although the Bank Guarantee is obtained through the Collateral Transfer facility (or as others choose to say ‘leased’), this has no bearing on the quality of the Guarantee and can still be used to raise credit and loans. As the verbiage of the Guarantee will be ICC758 standard approved wording, there is no mention of ‘lease’ within the instrument itself.
Remember, ‘leasing’ is a misnomer and is never a phrase used in these facilities. It is also important to know however, that by using the Guarantee to secure credit and loans, interest charges will apply in addition to the Contract Fee (the ‘rental’ fee of the Bank Guarantee). From our experience, international bank lending rates for loans secured against such high quality security tend to be in the region of 03,00% per 12 month term, possibly more.