SBLC Transaction Funding Option
For large projects with budgets in excess of $25M we have a 100% funding option that has very specific requirements for the prospective borrower to follow to engage their bank to determine if their bank has interest in receiving a cash backed SBLC. Using this program our lending group would issue a new Standby Letter of Credit (SBLC) or Letter of Credit (LC) from one of their tier 1 banking partners (Barclays UK or HSBC London or NY) that is fully cash backed. The receiving bank MUST HAVE the full capability to monetize that bank instrument.
Under this program the borrower would need to have an existing relationship with a bank, either directly or through a family office or hedge fund that you work with who is capable of receiving and monetizing a SBLC. The bank would need to agree to receive and monetize the cash-backed SBLC. The bank (or their hedge fund/family office client as the monetizer) would then offer our lending group one of two possible options:
Option 1 for the Bank or Monetizer is a Non-Recourse Payout.
In this case the SBLC would be "cashable" and the expected LTV would depend on how the payout is offered, note that a minimum of 50% of the monetized value is required at close. The bank will have the instrument on their balance sheet for a year, which they can leverage into additional profits then upon maturity (12 months + 1 day) the bank would cash the SBLC for the full face value of the instrument. In terms of funding the loan: Up to half the amount received from the bank (after discounting and recovering costs) can be lent to the borrower's project to fully fund it,
Option 2 for the Bank or Monetizer is a Bank Line of Credit.
Under this scenario the SBLC would be "returnable". Here the lending group seeks a 75-85% LTV on the SBLC and these funds be wired to them as a Line of Credit or loan that they would repay at the maturity of the instrument at which time the SBLC our lending group sends to the receiving bank would be returned in full value at 12 months plus a day. Specific to funding the loan: The SBLC must yield 2X the funds required by the project (after discounting) and up to half the funds provided in the credit line would be available to fund the project.
What Else Your Bank Need to Know:
Certain departments of banks are used to the SBLC processes, but typically they deal with existing instruments. As a result they almost always ask you for the "SBLC Verbiage". However, the way our lending group has structured this program their instruments are all "new issues" - that will be created by their tier 1 bank (either Barclays UK or HSBC London or NY) specifically for this transaction. As a result, the new SBLC can have any verbiage the receiving bank desires, and while the SBLC verbiage must always conform to ICC600 standard (International Banking Standard, which these bankers should inherently understand), our lender can tailor this new issue SBLC to have any wording the bank prefers. In fact, our lending group wants the bank to provide their desired verbiage so the SBLC will yield the BEST LTV POSSIBLE.
How to Proceed:
There are specific "non-solicitation" rules in banking and as a result our lending group’s banking group cannot initiate contact with the receiving banker - this must be done by the banker whose bank will receive the instrument. So our lending group requires the borrowing group's banker to send the borrower/client an email that can then be forwarded on to be handled by our lending group’s bankers. This email will have to include three things:
This email is the first step in the process using this funding program. The email needs to be from THE BANK to the client, which then opens the door for the banking team to engage the client's banker directly to verify and begin set up. Please note that without the ability to establish and confirm the banking partner upfront, there is no path forward to funding the project.
SETTING UP THE PROJECT LOAN:
Once the SBLC has been monetized and the funds wired to our lender from the bank, the project then goes through the lender's usual intake process. The funds from the borrower’s bank becomes the "proof of funds" for the project and the lender processes the borrower’s application to receive a loan from them. Once the project has been accepted for funding, the lender would go through the Term Sheet and then contract process - once complete, financing of the project can commence.
Since the lending group is providing 100% financing for the project, they will always take an equity position in the project. That position could range between 20% and 40%, depending on the risk profile of the deal, and the actual number will only be discussed once a funding path is confirmed for monetizing the SBLC. The interest rate of the loan will be dependent on the bank's monetization: If it is a credit line then the client's loan will be charged AT THAT SAME INTEREST RATE. If the bank opts for a payout on the SBLC, then the loan to the project would be at 3.5% (our normal lending rate).
Standard lending fees apply: the 3% Lending Fee and Closing Costs due at close and paid out of proceeds, plus the monthly cost of the loan caretaker at $5,000 invoiced monthly.