Large
Project Financing
Letters
of Credit (LCs) Used as Collateral for Construction/Acquisition
Very often
Letters of Credit are used as collateral for
Large Project financing. The main concern is that the clients
have the
ability to pay for the instrument, and to protect it with an acceptable
third party Bank or Insurance
Company commitment to take out the LC before its maturity, with payoff
or permanent financing. This is NOT a loan program.
We only provide the instrument upon which Developers and/or Projects
can borrow.
Following is a collection of information on the procedures of
the LC transactions. As you can see the process is described
several times in different ways and from different angles to
attempt to make it more understandable:
• LC in exchange
for a Take-out Commitment: In these transactions, we
will cause a LC to be issued from a leading world
bank (One of the oldest
Western
European Banks with
200 Billion in assets and A Rated)
provided a very strong
and reputable
entity (large insurance
company or bank for example) unconditionally and
irrevocably agrees to take
us out prior to the instrument's maturity.
Take-out here means that the entity
agrees to pay off the LC before it is
called; often by issuing the borrower
(project) a long-term loan
or mortgage.
The fee is 6% of the face value of the
instrument per annum due immediately upon good
delivery and verification
of the instrument.
NOTES:
* Banks will communicate on a bank-to-bank basis.
* LCs will be issued and sent via SWIFT.
Breaking down the transaction:
There are four entities involved.
- Take-out provider – AKA permanent lender or long-term lender
- Lending Bank (Lends short term against the LC) for the
construction/acquisition
- LC Provider (200 Billion Dollar Euro Bank)
- Borrower (Project)
• The take-out provider agrees to provide permanent financing on a
specific
future date. The date must be prior to the maturity date of the
LC.
• The lending bank takes in the LC and loans against it. Because
of the
strength of the LC it should be easy to arrange this with any Major
bank in
the world.
• We cause the issuance of a LC from our Western
European bank on
behalf of the Client.
-Client has funds for project.
-Lending bank profits from loan against LC.
-Take-out provider comes in with financing/payoff at
a future date after
project has been built out and is
more valuable.
-LC provider is compensated for use of its
instrument.
Following is the procedure for acquiring a Letter of Credit:
The LC from a $200 Billion bank in EU jurisdiction will be free of any
liens, leases or encumbrances upon issuance. It will mature on a
specific date in the future in accordance with the needs of the Client,
but the entire 6% per annum fee must be paid upon good delivery of the
LC.
First of all, it is important that you understand that the LC is NOT
leased. It is NOT a direct-pay LC; This is a live LC issued for
the benefit of the Client, that matures on a specific date in the
future. The Procedure follows:
To begin the process, the Client opens an escrow for the
Commitment Fee of 2% of the face amount of the LC. It will be
acceptable to open escrow with an attorney in the USA or Europe,
if so required.
Our Bank ($200 Billion, A+ rated) will issue a commitment, providing
that there is an undertaking from your Bank that it will:
• Promise to pay 6% per annum upon good receipt and verification of the
LC ... and
• Promise to return the LC (unencumbered, lien-free and not called)
before its maturity date.
Upon receiving the Commitment, your Bank and our Bank will arrange a
call to confirm the authenticity of the commitment. After the
authenticity of the Commitment is verified by your bank, the escrow
(Commitment Fee) will be released. Closing date will be arranged
by the Banks.
At closing, the Letter of Credit and the 6% per annum Fee will be
delivered via SWIFT (with no escrow involved).
Transaction details are noted below:
• Client escrows 2% (of LC face value) Commitment Fee.
• Commitment to issue LC from $200 Billion bank in EU jurisdiction is
obtained.
• Client has his banker confirm validity of Commitment Letter.
• Escrow is released.
• Closing date is set.
• LC is issued and delivered via SWIFT in exchange for Undertaking from
Receiving Bank to:
1) Return the LC unencumbered, lien free and not called prior to LC’s
maturity date and to:
2) Pay the 6% per annum fee upon good
delivery and verification of LC.
Hopefully these various descriptions of this
type of transaction
make it easier to understand. We will be happy to
arrange conference calls with you
and our Principal if you have a viable project, and have any
further questions or would like to proceed.
If you have questions, you may call us at (407)
522-0133 (USA) or e-mail us
anytime.
