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Discounting of Bank
Guarantees (BG's)
(Redeeming for cash or raising a credit line)
The
"Discounting" of Prime Bank Guarantees (BG's) is based on the
following criteria and generally accepted conditions:
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Depends on the type of
BG, i.e. Face Value (zero coupon); Term Interest Bearing; One Year and
One Day; 5, 10, 15, 20 Year; etc.
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The preferred BG type
is One Year and One Day, but virtually any type of BG is acceptable.
The conversion value (Net Cash to Client) may vary dramatically.
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Bank Guarantees are
defined as those issued by a Major Bank in Europe.
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All BG's must be in US
Dollars.
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All transaction amounts
must be in or converted to US Dollars only.
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It must be fully
understood, the BG is sold outright for a "Cash Value".
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The following are some
examples of 'Converting a BG to Workable CASH':
Example
Assumes the Bank Guarantee (BG) is the One Year and One Day Type for
1.03 to 1.08 (103 to 108 percent) and issued from a top European Bank.
The following in
principal is how the discounting works:
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Cash the BG by
Selling it outright.
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The BG can be
discounted at 10+6 percent (10 percent par face value plus the
6 percent interest). Therefore, lets assume 100 million
dollars plus the back end of 6 percent maturity value on the
face BG amount. This would make the transaction amount
have an estimated cash value of 90 Million US Dollars to the client.
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The Actual Cash Value
on every 100 Million US Dollars (90 Million) would be paid in full
at time of transaction and selling of the BG for the full face
amount of 100 Million which matures at 106 percent in one year and
one day.
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The 'Full Cash
Amount' is then paid to the client through a Bank-to-Bank wire
transfer.
Example
Assumes the bank Guarantee (BG) is for 65 Million US Dollars, interest
bearing that matures in 20 years.
The following in
principal is how the discounting works:
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'Cash' the BG by
selling it out right.
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The 'BG' can be
discounted from 60% to 85% depending on market conditions. Therefore,
a 65 million dollar BG is worth in 'CASH' 39 to 55 million.
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The 'Full Cash
Amount' is then paid to the client through a Bank-to-Bank wire
transfer.
Notes
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Banks change their
policies from time to time, and these are guidelines only.
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The BG can be 'Cashed'
outright, but 'Credit Lines are more desirable by banks.
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The BG after it is
'Cashed' can be put into a High Yield Roll Over Program for
Investments (Hyrop). The minimum investment return on a Hyrop to the
'Client' is approximately fifty (50%) percent.
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Please see What are
"High Yield Roll Over Programs".
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The above examples are
for BG's issued from Major European Banks.
Hints
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BG's are usually issued
by a corporation as collateral.
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BG's held by
individuals are highly questioned by banks throughout the world.
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It is generally easier
to raise a 'Credit Line' than convert the instrument to CASH!
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Fluctuating World
Market Conditions set the pace and determine the trading value, if
any.
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Usually most every
instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
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Substantiated
"Documentation' is needed for this type of transaction.
We provide more information in
our Member Area. Subscribe
as Member
Recommended further reading:
Bonds
Bankers
Acceptance
Commercial
Paper
Guarantees
Introduction
to Institutional Trading
Introduction to Bank
Debenture Trading Programs
Zero Coupons and STRIPS
Terms
of use
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Internet Solutions (Pty) Ltd
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