- Financing Terms
- Underwriting Process
- Financial Instrument Quality
- Payment Instruments
- Traded Instruments
Financial Instrument Loans are secured by financial instruments such as a) standby letters of credit (“SBLC”), b) negotiable debt or c) equity securities. These loans are primarily underwritten based on the quality of the underlying financial instrument, and in case of a default by the borrower, LENDER has full recourse to the financial instrument collateral to recover any loan amount outstanding.
This form of financing is especially suitable for special situations such as cross border transactions or instances where the borrower requires a third party guarantee to qualify for the level of financing sought.
60% to 80% of the financial instrument value. Minimum loan amount is $US 500,000.
USD, CAD, EUR
Collateral usually takes the form of a Standby Letter of Credit from investment grade bank. A debt or equity security may also be acceptable as collateral if there is a sufficiently liquid secondary trading market in the security.
10% to 15%, payable upon loan disbursement.
Interest deducted from loan disbursement. Principal due in single lump sum upon loan maturity.
Extensions available by mutual agreement, subject to extension of financial instrument.
The Financial Instrument Loan is underwritten primarily based on the quality of the financial instrument. Borrower credit-worthiness and/or project feasibility take secondary importance. LENDER will undertake customary legal and financial due diligence on all material aspects of the financing transaction including but not limited to the collateral, the borrower/project and the use of funds.
Financial Instrument Quality
In assessing the quality of the financial instrument LENDER draw on multiple sources of data/information including but not limited to:
• corporate credit ratings and political risk ratings issued by the major ratings agencies.
• legal opinions on the contractual terms of various instrument.
• the advice/opinions of industry subject matter experts and practitioners.
Financial instruments which can be called upon to payout the lender in case of a loan default are defined as Payment Instruments for underwriting purposes. Payment Instruments generally consist of a) standby letters of credit (SBLC’s), b) bank demand guarantees (BG’s) and c) other third-party guarantees. The Payment Instrument is preferred over the Trading Instrument as loan collateral.
In order to assess the suitability of a Payment Instrument as loan collateral, the following analysis is performed:
• Assessment of the credit worthiness of the issuer/obligor that is undertaking to make payment under the instrument in case of loan default
• Analysis of the contractual terms of the instrument and determination of which conditions (if any) need to be met in order to receive payment under the instrument.
Financial instruments which cannot be called upon but instead must be sold by the lender to recover outstanding monies in case of a loan default are defined as Traded Instruments for underwriting purposes. Traded Instruments generally consist of debt and equity securities such as bonds, treasuries and stocks. The Traded Instrument is less preferred than the Payment Instrument as loan collateral.
In order to assess the suitability of a Traded Instrument as loan collateral, the following analysis is performed:
• Determine if the instrument is freely tradable, and if a market exists in the instrument.
• Determine the liquidity of the instrument by assessing how much time it would take to sell the instrument in order to recover outstanding monies in case of loan default.
Who are borrowers?
The following scenarios represent a few applications of Financial Instrument Loans.
• An investor may make foreign investments without transferring funds to the investment country, or liquidating assets in their home country. The investor accomplishes this by pledging assets in their home country to obtain an SBLC, and having LENDER provide a loan in the investment country.
• A project owner who does not qualify for bank financing may secure a “guarantor” (able to issue an SBLC) and thereby obtain project financing.
• A new subsidiary may obtain financing for its operations by having its parent company provide an SBLC.
If you are interested, please contact us
3592 Rosemead Blvd
Rosemead, California 91770
Los Angeles – USA