When an asset is pledged as collateral, resulting in securing a loan, hypothecation occurs. The asset owner does not give up the following…. title, possession, or ownership rights, such as generated income by the asset.
Credit Lining a Bank Guarantee
If the Leased Bank Guarantee is being utilised for monetisation, then a Demand Bank Guarantee will be used as it contains specific verbiage and is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). URDG 758 is specific to a Demand Bank Guarantee, which is written in such a way that lenders understand that this instrument has been issued for monetisation purposes only. When monetising a Standby Letter of Credit, the exact same verbiage is used as in a Demand Bank Guarantee.
For more information on URDG 758, please go to “URDG”
Once the Bank Guarantee has been received by the Beneficiary, they may apply to their bankers for a loan or line of credit, (referred to as Credit Guarantee Facilities), offering the Bank Guarantee as security.
From time to time it has been known for the Beneficiary’s bankers to refuse credit facility applications, (usually for compliance reasons), even when a Demand Bank Guarantee is being offered as security. However, at IntaCapital Swiss, we are able to provide alternative lenders, known as third party lenders, who will be happy to lend against the security of a Demand Bank Guarantee.
Credit Lining Standby Letters of Credit
Hypothecating or monetising Standby Letters of Credit is exactly the same as hypothecating or monetising a Demand Bank Guarantee. Please see above.