Information on monetising a Bank Guarantee via Credit Lining and Discounting

Monetising a Bank Guarantee

If a company wishes to monetise a Bank Guarantee in order to receive a loan or credit line – referred to as Credit Guarantee Facilities, the wording must be specific to that of a Demand Bank Guarantee. This is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758), and is used for monetising.

A Demand Bank Guarantee will allow the Beneficiary to confidently approach their bank, utilising the Bank Guarantee as security. This will allow them to apply for a capital injection, straight bank loan or a line of credit, referred to as Credit Guarantee Facilities.

The Beneficiary should negotiate the details of loan or a credit line with their bank or lender, such as the LTV (Loan to Value) prior to receiving the Bank Guarantee on their account – confirming the wording of the Bank Guarantee is acceptable.

Discounting a Bank Guarantee

Discounting is a financial term and can be expressed in different terms for different transactions. For this example, a bond can be discounted for 10% of face value, but the owner can receive full value at maturity. However, a Bank Guarantee cannot be sold, therefore cannot be discounted.

The confusion arises where a lender offers an LTV, (Loan to Value), of say 90% of face value of the Bank Guarantee, which could look like a 10% discount. The Bank Guarantee is not being discounted it is being lent against or credit lined, which is exactly the purpose for which it was issued.

There are many companies and individuals who purport to be able to discount Bank Guarantees, and they should be avoided at all costs.

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