Structured Finance Cash Collateral
Many projects never get the funding needed because of insufficient collateral to reduce the lender’s risk of making the loan. In these instances, this collateral enhancement program is a very viable option. This project funding solution will have advantageous cash flow and tax structure for the borrower and is available internationally where not prohibited by law. All project types are acceptable (with exception of weapon or warfare, gambling, drugs and porn related projects.)
We will only facilitate the Cash Collateral for the borrower and not the Project Loan. The borrower must either have or locate a bank willing to fund his/her project subject only to sufficient collateral being provided. The bank has to be an A+ rated bank without exception. If borrower doesn’t have an existing relationship with an A+ rated bank and/or prefers not to locate a lender, then a project presentation / bank placement, plus rate and terms negotiations could be facilitated on behalf of borrower. Bank placement is subject to lender approval of project and is therefore not guaranteed. Whether borrower has his/her own bank or whether we provide the bank, the borrower’s business plan needs to demonstrate commitment to project and profitability.
Our well funded Depositor Groups will provide the funds to purchase CD Collateral for the transaction. The minimum project cost/loan amount considered under this program is US$25 million and there is no maximum loan amount. Successful implementation of the funding program requires three parties: The Borrower, a Commercial Lender, and the Depositor.
1. DEPOSITOR INVESTOR (provided by our COLLATERAL FACILITATOR; deposits CASH in BANK to collateralize loan for BORROWER)
2. LENDER BANK (accepts CASH deposit and issues 10 yr non callable CDs or Bonds for collateral basis of loan to BORROWER)
3. PROJECT BORROWER (provides PROJECT, and receives net proceeds of loan from BANK)
BRIEF OVERVIEW OF THE LOAN PROCESS: (Assume BORROWER needs $200M for project funding)
1. INVESTOR deposits (2x) the project need amount (optionally, the loan costs can be added to loan amount). However, in this illustration the Investor Depositor will deposit $400M Cash into an account at the lending BANK
2. INVESTOR purchases $400M in CD’s or Bonds (A Rated or better) from lending BANK
3. BANK lends BORROWER 90% to 100% of the $400M collateral value using INVESTOR’S CDs as collateral
4. BORROWER buys from the INVESTOR (with loan proceeds) the $400M in CD’s for $200M
5. INVESTOR now has $200M of his money back from loan proceeds
6. BORROWER’s $400M loan is PRINCIPAL GUARANTEED by the $400M 100% CASH BACKED Deposit
7. BORROWER receives $200M at closing (minus loan costs / bank retained LTV percentage)
8. INVESTOR gets remaining $200M, from (prearranged) sell of Interest Strips at 52% of $400M face value.
9. BORROWER receives needed loan, INVESTOR earns risk free 2% profit, BANK collects 10 yrs interest on 100% cash collateralized loan and bank can leverage $400M deposit for their investment benefits.
10. A WIN, WIN, WIN transaction for the DEPOSITOR INVESTOR, PROJECT BORROWER and the LENDING BANK.
EXPANDED OVERVIEW and CONCLUSIVE MUTUAL BENEFITS:
1. BANK will first confirm with BORROWER or Borrower’s Intermediary that they understand the loan program as follows:
a. The loan would be 100% cash collateralized by the deposit purchased from the lending bank
b. INVESTOR will purchase a specially structured 10-yr non-callable A+ Rated instrument from lending bank, that provides a pre-negotiated annual return, and allows for ‘interest coupon stripping’ at closing.
c. INVESTOR will assign Deposit to the BORROWER’s project as loan collateral, and INVESTOR will keep the 10 annual interest yield coupons to facilitate complete return on investment and 2% profit.
d. BORROWER will in turn pledge the CD to secure a loan from BANK equal to 90% to 100% of the face value of CDs.
e. BORROWER will effectively employ the loan funds provided to generate adequate cash flow to service the (interest payments debt on the loan). Again, the PRINCIPAL borrowed is 100% collateralized by the CASH BACKED CD’s.
f. BORROWER will then forward the BANK contact person’s name and phone number to the INVESTOR’S MANDATE.
2. The INVESTOR’S MANDATE will call the BANK, confirm the bank’’s understanding of the loan program and answer any questions the BANK contact person may have.
3. The INVESTOR will then contact the BANK directly and the INVESTOR and the BANK will work out Compliance Issues of the BANK. This will include arranging INVESTOR’S face to face meeting with bank officials for necessary due diligence, full disclosures, etc as is required by the U.S. Patriots Act. NOTE: If loan is to be funded by a bank located by the borrower and the investor is working with bank for the first time, the borrower is responsible for paying the investor’s travel and lodging expense.
4. Once the BANK has issued a conditional loan TERM SHEET and deposit instructions, the INVESTOR then wires the collateral monies to the BANK within 7-10 working days.
5. BANK issues 10 year, non callable CD/Bond, then the bank lends the PROJECT BORROWER 90% to 100% of Bond’s face value.
6. At loan closing, from the loan proceeds, INVESTOR receives back 50% of his cash deposit amount (plus CDs interest coupons).
7. BORROWER receives the net loan proceeds (minus loan costs & bank retained loan-to-value percentage) and makes interest only payments for ten year loan term with no principal to repay ever.
LOAN RATE & TERM:
Interest Rate- Determined by Bank/Lending Institution
Term – 10 year interest only payments (CD deposit fully repays principal amount at maturity)
UPFRONT COSTS:
We charge nothing – 100% Success Fee
Small engagement Fee required by Investor after acceptance of the deal and a Term Sheet is issued
PLEASE NOTE: Funding is subject to bank approval of borrower’s overall business proposal including but not limited to the borrower’s business plan and income projections. Borrower’s business plan needs to demonstrate commitment to project and profitability. The bank placement is on a “best efforts basis and is therefore not guaranteed.