Indicative SBLC Leasing/ Collateral Transfer Term Sheet

Public indicative terms for a USD 10M SBLC collateral transfer covering fees, issuance, compliance, draw mechanics, security and closing.

Financely Debt Advisors

Financely Debt Advisors

— 11 min read
Share
Indicative SBLC Leasing/ Collateral Transfer Term Sheet
Photo by Noel Broda / Unsplash

What an SBLC Collateral Transfer Can Look Like

Companies looking for an SBLC sometimes use the expression SBLC leasing to describe a transaction in which another company makes collateral or credit capacity available so that a bank can issue a standby letter of credit in favor of the recipient or its financing institution.

"Leasing" is commercial shorthand rather than a precise description of the legal structure. The operative transaction is generally a collateral transfer or collateral provision arrangement. A provider causes an acceptable bank to issue an SBLC using the provider's approved banking facility, collateral or credit capacity. The recipient pays an agreed collateral transfer fee for the availability of that credit support.

The resulting SBLC is a bank undertaking. It may support a loan, trade finance facility, contractual payment obligation or another approved exposure. The recipient does not purchase the bank instrument and does not acquire the provider's underlying collateral.

Financely assists corporate clients with standby letter of credit arrangements, transaction structuring, provider identification, lender coordination, due diligence and execution. Financely does not itself issue bank instruments and does not represent that every applicant will qualify for a collateral transfer.

Public Specimen Only

The term sheet below uses a USD 10,000,000 example so prospective clients can understand how a properly structured transaction may be documented. It is not an offer, commitment, quotation or representation that an SBLC is available on these terms. Every transaction requires separate underwriting, KYC, KYT, sanctions screening, bank approval and definitive legal documentation.

Illustrative Transaction

Assume an operating company requires credit support for a financing facility. Its lender is prepared to consider an SBLC from an acceptable issuing bank as part of the credit package. The company does not have sufficient existing bank lines to procure the required instrument directly.

An approved collateral provider agrees to make its banking capacity available for twelve months and one day. The issuing bank then issues a USD 10 million financial standby in favor of the financing bank. The recipient pays the provider an agreed fee for making the collateral capacity available and remains responsible for ensuring that the supported financing is repaid before the SBLC expires.

Public Indicative SBLC Collateral Transfer Term Sheet

INDICATIVE COLLATERAL TRANSFER TERM SHEET
USD 10,000,000 Standby Letter of Credit

1. Transaction Classification

Commercial Description SBLC Collateral Transfer, sometimes commercially referred to as "SBLC Leasing"
Instrument Irrevocable Financial Standby Letter of Credit
Face Amount USD 10,000,000
Currency United States Dollars
Purpose Credit enhancement for a corporate financing facility
Applicable Rules International Standby Practices, ISP98, ICC Publication No. 590

2. Transaction Parties

Recipient Eligible corporate operating company approved following underwriting and compliance review
Collateral Provider Approved corporate or institutional provider with verified banking and collateral capacity
Issuing Bank Regulated commercial bank acceptable to the beneficiary and approved through transaction underwriting
Beneficiary Regulated bank or institutional lender providing the supported financing facility
Transaction Adviser Financely, acting as structuring and transaction coordination adviser and not as issuing bank or principal collateral provider

3. Instrument Terms

Face Value USD 10,000,000
Tenor 12 months and 1 day from issuance
Issuance Authenticated SWIFT MT760 from the issuing bank to the beneficiary bank
Pre-Advice No pre-advice required unless requested by the beneficiary bank and approved by the issuing bank
Partial Drawings Permitted
Multiple Drawings Permitted up to the remaining available amount
Transferability Non-transferable unless expressly approved by the issuing bank
Assignment of Proceeds Permitted only where acknowledged by the relevant bank and permitted under the final SBLC wording
Confirmation Not included. May be added by an acceptable confirming bank at the recipient's cost if required by the financing lender

4. Illustrative Commercial Economics

SBLC Face Amount USD 10,000,000
Illustrative Collateral Transfer Fee 8.00% per annum
Annual Provider Fee USD 800,000
Illustrative Issuing Bank Charge 1.00% of face value, equivalent to USD 100,000, subject to actual bank quotation
Illustrative Legal Budget USD 40,000 for specialist banking and finance counsel
Indicative Third-Party Transaction Cost USD 940,000 excluding Financely's separately agreed advisory mandate and any lender-side financing costs

These numbers are used solely to illustrate the mechanics of a USD 10 million transaction. They are not quoted market rates. Provider premiums, issuing bank charges, legal costs and other expenses vary according to transaction size, issuing bank, beneficiary requirements, tenor, collateral source, country risk and credit profile.

5. Payment Mechanics

Under this specimen structure, payment would be organized as follows:

  • Provider fee: USD 800,000 becomes payable only after the beneficiary bank authenticates receipt of the issued MT760, unless different terms are negotiated in the definitive Collateral Transfer Agreement.
  • Issuing bank charges: paid directly to the relevant bank or through an approved documented settlement mechanism where required by the bank.
  • Legal fees: paid pursuant to the independent engagement terms of specialist legal counsel.
  • Financely advisory fees: governed by a separate engagement letter and are not included in the USD 940,000 illustrative third-party transaction cost above.

No prospective client should transfer collateral, issuance fees or transaction funds to an unidentified intermediary based solely on an email, draft SWIFT message, screenshot, proof-of-funds document or purported bank officer communication.

6. Recipient Cash Collateral

Recipient Cash Collateral at Issuance 0% under this illustrative collateral transfer structure
Provider Support Provider supplies the collateral or approved banking capacity required to support the issuing bank's exposure
Recipient Reimbursement Liability 100% of any amount properly drawn and paid under the SBLC, together with agreed enforcement costs and accrued obligations

A zero cash-collateral requirement does not mean the recipient receives risk-free credit support. If the SBLC is validly drawn because of the recipient's default under the supported obligation, the definitive documentation normally establishes how the resulting exposure is reimbursed and what security is available to the provider.

7. Supported Financing

Indicative Financing Facility Up to USD 7,500,000
Illustrative Advance Rate 75% of SBLC face amount
Actual Advance Rate Determined exclusively by the financing lender following its own credit approval
Repayment Deadline All supported financing must be discharged no later than 30 calendar days before SBLC expiry unless the instrument is formally renewed

The 75% advance rate is an example only. An SBLC does not automatically produce a loan and there is no universal "monetization rate." Every lender independently determines whether it will lend, how much it will advance and what security package it requires.

8. Permitted Use

The SBLC may be used solely as credit enhancement for the approved financing facility. It may not be:

  • resold;
  • represented as cash;
  • used in an undisclosed investment program;
  • used to support an unrelated borrower;
  • pledged to multiple lenders;
  • transferred without required approvals; or
  • used for any transaction that has not passed applicable compliance review.

9. Draw Conditions

The final SBLC would permit the beneficiary to make a complying demand following failure by the recipient to satisfy an eligible payment obligation under the supported financing agreement.

Indicative presentation requirements are:

  1. A signed written demand for payment.
  2. A beneficiary certification stating that an amount due under the identified financing facility remains unpaid.
  3. Identification of the amount demanded.
  4. Presentation before the stated expiry date and at the presentation location specified in the SBLC.

Final drawing language must be approved by the issuing bank, beneficiary, provider and applicable legal counsel. The independent nature of the SBLC means disputes under the underlying financing agreement do not automatically prevent an issuing bank from honoring a complying presentation.

10. Reimbursement and Indemnity

The recipient provides a full contractual reimbursement undertaking in favor of the collateral provider for any amount paid as a consequence of a valid drawing attributable to the recipient's default.

The recipient also indemnifies the provider against losses arising from:

  • a valid drawing resulting from recipient default;
  • fraudulent or materially inaccurate information supplied by the recipient;
  • unauthorized use of the instrument;
  • undisclosed changes to the supported transaction;
  • sanctions or regulatory violations attributable to the recipient;
  • failure to discharge the supported financing before expiry; and
  • breach of the definitive Collateral Transfer Agreement.

11. Security Package

For this specimen transaction, the reimbursement obligation is supported by:

  • first-priority assignment of proceeds of the supported financing facility to the extent legally permissible;
  • corporate reimbursement undertaking from the recipient;
  • assignment of material rights under the supported financing documents where applicable;
  • controlled repayment mechanics designed to ensure the supported debt is discharged before SBLC expiry; and
  • any additional security required following transaction-specific underwriting.

12. Renewal

Automatic Renewal No
Optional Renewal One additional 12-month period subject to fresh approval
Renewal Request Deadline At least 60 calendar days before expiry
Illustrative Renewal Provider Fee 8.00% of the renewed face amount for the additional annual term

Renewal requires continued provider capacity, renewed bank approval, satisfactory compliance status, absence of default and agreement of all transaction parties.

13. KYC, AML and KYT

The transaction is subject to full institutional due diligence. Required review includes:

  • corporate KYC;
  • ultimate beneficial ownership verification;
  • PEP screening;
  • sanctions screening;
  • adverse media review;
  • source-of-funds review;
  • source-of-wealth review where applicable;
  • Know Your Transaction review;
  • underlying financing review; and
  • verification of the intended commercial purpose.

The recipient must disclose the complete transaction. Provider and bank approval may be withdrawn if material facts concerning the use of the SBLC, borrower, beneficiary, financing institution, jurisdictions or underlying transaction were omitted or inaccurately represented.

14. Conditions Precedent

No issuance occurs until all conditions precedent have been satisfied, including:

  1. Completed corporate KYC.
  2. Satisfactory AML and sanctions clearance.
  3. Completed KYT review.
  4. Evidence of the supported financing transaction.
  5. Executed Collateral Transfer Agreement.
  6. Executed reimbursement and indemnity documentation.
  7. Completion of agreed security documentation.
  8. Approval of the final SBLC text.
  9. Verification of beneficiary bank coordinates.
  10. Written acceptance of the proposed issuing bank by the beneficiary where required.
  11. Final credit approval by the issuing bank.
  12. No material adverse change before issuance.

15. Required Transaction Documentation

The anticipated legal document suite includes:

  • Collateral Transfer Agreement;
  • Fee Letter;
  • Reimbursement Agreement;
  • Indemnity;
  • Security Agreement where applicable;
  • assignment documentation where applicable;
  • account control documentation where required;
  • corporate resolutions;
  • legal opinions where required;
  • final SBLC text; and
  • issuing bank application and ancillary banking documentation.

16. Data Room Requirements

The recipient is expected to maintain a lender-ready transaction data room containing:

  • Corporate: incorporation documents, constitutional documents, ownership chart, director register, shareholder register and board approvals.
  • Financial: historical financial statements, current management accounts, debt schedule and financial projections.
  • Financing: lender term sheet, draft or executed facility documentation, source and use of funds and repayment model.
  • Underlying transaction: contracts, purchase agreements, sale agreements, invoices, project agreements or other documents demonstrating the commercial purpose of the financing.
  • Compliance: KYC documents, UBO information, source-of-funds evidence, licenses and regulatory approvals.

Advisers and lawyers may organize, review and draft financing documents. The recipient remains responsible for supplying genuine underlying transaction evidence. Purchase agreements, sales contracts, invoices, project contracts, purchase orders and other commercial records must originate from the actual transaction parties.

17. Events of Default

Events of default under the definitive Collateral Transfer Agreement include:

  • failure to pay agreed fees when due;
  • failure to reimburse an honored drawing;
  • material breach of the Collateral Transfer Agreement;
  • material misrepresentation;
  • submission of fabricated or materially altered documents;
  • insolvency or bankruptcy;
  • unauthorized transfer or encumbrance of the SBLC;
  • use of the SBLC outside the permitted transaction;
  • sanctions designation or illegality affecting the transaction; and
  • failure to discharge the supported financing within the required period.

18. Provider Remedies

Subject to applicable law and definitive documentation, remedies may include:

  • refusal to renew the instrument;
  • acceleration of reimbursement obligations;
  • enforcement of agreed security;
  • application of controlled funds;
  • recovery under contractual indemnities;
  • recovery of reasonable enforcement costs; and
  • other remedies available under the definitive agreements and governing law.

The Collateral Transfer Agreement cannot simply instruct an issuing bank to ignore an otherwise complying demand. Rights between the recipient and provider operate separately from the issuing bank's independent undertaking.

19. Governing Law and Dispute Resolution

Collateral Transfer Agreement English law for this illustrative specimen
Dispute Resolution LCIA arbitration
Seat of Arbitration London, England
Language English
Arbitrators One arbitrator for disputes below USD 5 million and three arbitrators for disputes of USD 5 million or more

The actual governing law and dispute mechanism are determined transaction by transaction after considering the jurisdictions of the recipient, provider, issuing bank, beneficiary, collateral and supported financing.

20. Confidentiality and Non-Circumvention

Transaction-specific information concerning bank relationships, collateral providers, lenders, pricing, compliance records and non-public documentation is confidential.

Definitive documentation may also include a narrowly drafted 24-month non-circumvention obligation covering counterparties specifically introduced in connection with the mandate, subject to applicable law.

21. Transaction Timeline

  1. Initial underwriting: review of the recipient, purpose, required amount and proposed beneficiary.
  2. KYC and KYT: corporate, beneficial ownership, transaction and sanctions review.
  3. Provider allocation: identification and verification of an appropriate collateral provider.
  4. Bank alignment: confirmation of issuing bank acceptability with the proposed beneficiary.
  5. Documentation: negotiation of collateral transfer, reimbursement, security and fee documents.
  6. SBLC drafting: finalization of instrument wording with the banks and legal counsel.
  7. Conditions precedent: satisfaction of documentation, compliance and bank requirements.
  8. Issuance: authenticated MT760 transmitted to the beneficiary bank.
  9. Authentication: beneficiary bank verifies receipt and authenticity.
  10. Financing closing: lender completes its own conditions and advances funds where approved.

22. Binding Status

This public specimen is entirely non-binding. It has no acceptance period, creates no obligation to issue an SBLC, reserves no collateral capacity and does not constitute an offer by Financely, any bank, collateral provider or lender. Transaction-specific obligations arise only under duly executed definitive agreements.

Why the Reimbursement Structure Matters

The reimbursement obligation is one of the most important parts of a genuine collateral transfer.

Assume the provider supports a USD 10 million SBLC and the beneficiary ultimately makes a complying USD 7 million demand because the recipient failed to repay the supported financing. The issuing bank may have to honor the presentation in accordance with the instrument. The economic exposure does not disappear because the recipient paid an annual provider fee.

The Collateral Transfer Agreement therefore needs to establish who bears the ultimate credit exposure, how reimbursement occurs, what security supports that reimbursement and what remedies become available after default. These provisions should be coordinated with specialist banking and finance counsel.

An SBLC Does Not Automatically Create Funding

The existence of an SBLC and the existence of a lending commitment are separate matters.

A financing bank must independently approve the issuer, SBLC wording, beneficiary structure, borrower, use of proceeds and overall transaction. A lender may advance 75% against an acceptable instrument in one transaction, require a lower advance in another or decline the transaction completely.

For this reason, Financely generally treats the financing institution and the collateral provider as parts of the same transaction architecture. The structure should be developed around the lender's actual requirements rather than obtaining an instrument first and attempting to find a use for it afterward.

What Financely Does

Financely provides paid advisory, underwriting and transaction coordination services to companies seeking structured credit support.

Depending on the mandate, our work may include:

  • assessing whether an SBLC-supported structure is commercially appropriate;
  • reviewing the proposed use of the instrument;
  • preparing the transaction for provider and lender underwriting;
  • identifying appropriate collateral providers;
  • identifying lenders that can evaluate the resulting credit support;
  • coordinating KYC and KYT workstreams;
  • coordinating legal documentation with specialist counsel;
  • preparing and organizing the transaction data room;
  • coordinating SBLC wording among relevant parties; and
  • supporting the transaction through issuance and financing closing.

Corporate clients can also review our broader trade finance structuring and instrument services where the required structure involves documentary letters of credit, guarantees, receivables finance, inventory facilities or other forms of transaction-specific credit.

What We Need From a Prospective Client

A serious SBLC request should identify:

  • the required SBLC face amount;
  • the intended beneficiary;
  • the economic purpose of the SBLC;
  • the underlying financing or commercial agreement;
  • the required tenor;
  • the proposed source of repayment;
  • the expected financing amount if the SBLC supports a credit facility;
  • corporate financial information;
  • full beneficial ownership information; and
  • the transaction documents required to establish the commercial purpose.

Requests consisting solely of a face amount and a request for a "leased SBLC" are insufficient for institutional underwriting. The transaction must explain what the instrument supports, who benefits from it and how the associated exposure will ultimately be discharged.

Request Indicative Terms

Companies with a defined commercial requirement for an SBLC can submit the transaction to Financely for review. We assess the proposed structure, transaction size, intended beneficiary, required tenor, available documentation and financing objective before determining whether the mandate is suitable for underwriting.

Require an SBLC or Collateral Transfer Structure?

Submit the transaction for review. Eligible clients receive transaction-specific commercial terms after underwriting.

Request a Quote
Important Legal and Transaction Disclaimer

This page is provided for general commercial information and illustrates one hypothetical transaction structure. It is not an offer, solicitation, commitment, bank undertaking, credit approval, legal opinion or promise to arrange an SBLC on the stated terms.

Financely is not a bank and does not itself issue standby letters of credit. Financely provides advisory, structuring, underwriting coordination and transaction placement services. Where a transaction requires bank issuance, lending, custody, legal services or other regulated activities, those functions are performed by appropriately qualified third parties subject to their own approvals and engagement terms.

All SBLC transactions remain subject to KYC, AML, sanctions screening, KYT, source-of-funds review, transaction verification, legal review, issuing bank approval and beneficiary acceptance. No financing outcome, issuing bank, advance rate, provider premium or timetable is guaranteed.

The USD 10 million face amount, 8.00% collateral transfer fee, USD 100,000 illustrative bank charge, USD 40,000 legal budget and 75% hypothetical financing advance used above are examples only. They are not quoted market rates and should not be relied upon as pricing for any actual transaction.

ISP98 governs an SBLC only where the instrument is expressly made subject to those rules. Applicable law, bank policy and final instrument wording may modify the legal treatment of a particular transaction.

Prospective clients should obtain independent legal, tax, accounting and regulatory advice before entering into a collateral transfer, reimbursement, security or financing agreement.

Read more