SBLC / BG / DG / BPU

SBLC Provider- Standby Letter of Credit (SBLC) / Bank Guarantee (BG) Demand Guarantees (DG)

Financial instruments, mainly Bank Guarantees / Standby Letters Of Credit Demand Guarantees (BG/SBLC/ DG), are monetary contracts between parties.

SBLC. BG and DG are issued by a Bank on behalf of a client at that bank by the bank. The Bank then takes responsibility for the payment should the SBLC. BG ever get a call placed on it to cash it or part thereof. A demand Guarantee matures with that “cash” being available on that maturity date, unlike an SBLC or BG which must have a call or demand to pay out based on the underlying contract. ·

ADVANTAGES OF SBLC/BG

SBLC/BG denotes irrevocable obligations assumed by banks. The principle is that if a complaint demand is made under a standby letter of credit, an issuing bank must pay, subject to only very limited exceptions.

The drafting of the SBLC should provide that the presentation of a demand (call) would be conclusive evidence that the amount claimed was “due and owing” to the Beneficiary of the SBLC. In the case where the SBLC was being used to underwrite a loan then should the loan become in default as the borrower failed to maintain their repayments then the lender of those funds can call upon the SBLC.  The beneficiary’s (lender) belief that payment was “due and owing” should activate payment.

The great benefit of a standby letter of credit is reflected in the fact that it can be used in practically any situation in which one party to a contract is concerned with the other party’s ability to perform.

The standby letter of credit is neither a contract nor a negotiable instrument and if it is not properly drafted, it will not be considered a guarantee at all. The standby letter of credit or SBLC is a distinct legal instrument, unlike any other. The obligation of the issuer of the SBLC is independent of the underlying contract between the issuer’s customer and the beneficiary of the SBLC.

Demand Guarantees are different in that there is no default clause contained within the instrument. The face value of the instrument is payable on a specific date upon presentation of that Demand Guarantee to the issuing Bank.

In today’s financial climate where moving large amounts of funds around the globe is both expensive and difficult, Demand Guarantees are a great way to achieve that requirement.

 COSTS FOR ISSUANCE OF AN SBLC/BG 

In today’s world Banks will no longer issue an SBLC/ BG without payment prior to the issuance. Bank and Swift fees must therefore be paid by the client to Glacier prior to issuance.

No one would issue a 100 million dollar Guarantee and pay all the costs and hope that the client will pay once their lender (beneficiary) received the SBLC.  At Glacier, we work hard to reduce the initial costs for our clients by tailoring the costs with the majority of the fees and costs paid after the receipt of the SBLC into the lender’s Bank account by Swift Mt700/760.

We do that by insisting that the receiving bank confirms Bank to Bank by Mt799 (pre-advice) its readiness to receive and their client has the capacity to settle within a specified time.

By doing this we get the initial costs down from 2.5% of the face to around 0.3 – 0.5% of the face amount depending on the bank and country doing the issuance.

FUNDING AGAINST AN SBLC/ BG

Glacier specializes in the issuance of SBLC / BG/ DG / CG  we are NOT LENDERS.

Don’t have a lender? enquire now and Glacier will put you in touch with some.

Standby Letter of Credit (SBLC) Issuance Using Bank Payment Undertaking.

Overview

Glacier International Depository (GID) can arrange the issuance of a Standby Letter of Credit (SBLC) on behalf of qualified clients for amounts up to €250 million through its established banking relationships with A-rated issuing banks in the United Kingdom and Belgium. Full details of the transaction structure, terms, and obligations are disclosed within the contractual documentation.

Client Qualification Requirements

To qualify for this facility, the Client/Beneficiary must demonstrate the financial capacity to complete the transaction by providing one of the following:

• A recent bank statement showing sufficient available funds; or
• A bank letter confirming financial capacity; or
• An established credit line with the receiving bank (RB).

Clients intending to utilize a credit facility should ensure that the credit line is fully established prior to commencement of the transaction. If the credit line is not in place before the SBLC is received, the establishment and funding process may exceed the permitted ten (10) banking days, potentially resulting in default and liability for all associated costs.

GID strongly recommends that clients have either:

• A fully established credit line in place before the transaction begins; or
• Alternative funds available to satisfy transaction obligations.

Transaction Structure

GID will arrange for an SBLC pre-advice to be transmitted via SWIFT MT199 to the Receiving Bank (RB).

Upon receipt of the MT199, the Receiving Bank shall issue a Bank Payment Undertaking (BPU) in favour of Underwriters Bank account for the agreed amount, including applicable interest.

Upon receipt of the BPU, GID will authorize the issuance of the SBLC by the designated issuing bank in the UK or Belgium directly to the Receiving Bank.

The Receiving Bank shall have ten (10) banking days to fulfil its payment obligations to GID’s Westpac account. Failure to do so may result in cancellation of the SBLC and recovery proceedings against the Client for all costs incurred.

Client Payment Obligations

The Client is required to execute Pay Orders covering:

• Issuance fees; and
• Intermediary/Broker commissions.

These payments become due upon settlement of the BPU.

Risk Mitigation

This structure significantly reduces the Client’s upfront financial exposure. GID has successfully minimized the majority of the transaction risk to a relatively small commitment fee, with the balance of costs and fees becoming payable only after issuance of the SBLC.

Please note that issuing banks generally no longer provide SBLC facilities without a commitment fee from the beneficiary.

This program is limited in availability and offered exclusively through GID and its approved clients.

Transaction Procedures

Step 1

Execution of contracts between GID and the Client/Beneficiary.

Step 2

Execution of Pay Orders covering issuance fees and broker commissions.

Step 3

Payment of the applicable commitment fee to Underwriters nominated Westpac account or approved cryptocurrency wallet.

Step 4

Transaction commencement. GID arranges transmission of the SWIFT MT199 pre-advice to the Receiving Bank.

Step 5

The Receiving Bank responds with a Bank Payment Undertaking (BPU) in favour of Underwriter.

Step 6

The issuing bank issues the SBLC to the Receiving Bank.

Step 7

The Receiving Bank settles the BPU obligation via SWIFT MT103 to Underwriters Westpac account and simultaneously honours all Pay Orders.

Step 8

The SBLC remains in force for 365 days and is subsequently terminated upon expiry.

Important Conditions

As this is a leased SBLC instrument, the Client undertakes that no demand or call shall be made against the SBLC.

Should any call be made, the Client accepts full responsibility and liability for all resulting payments, claims, costs, and obligations.

Commitment Fees

Issuance Fees (Paid by the BPU)

Interest and Intermediary Fees

• SBLC Interest: 9%–12% per annum, depending on the issuing bank.
• Intermediary Commission: Up to 2% of the face value.
• Certain negotiations may be available to reduce the commitment fee; however, this may result in a higher interest obligation under the BPU.

Minimum Commitment Fee

The commitment fee cannot be reduced below €15,000. Both the issuing bank and GID require a meaningful demonstration of client commitment, and GID will not absorb client establishment costs.

Clients unable to fund the applicable commitment fee do not qualify for this funding structure.

Broker and Intermediary Compensation

Intermediaries may receive up to 1% per side, with a maximum total commission of 2% of the face value of the SBLC, payable at settlement through the agreed Pay Orders.

GID does not handle broker commissions. Broker payments are made directly by the Receiving Bank at settlement.

Please note that many banks restrict Pay Orders to a maximum of four (4) payees. Where more than four beneficiaries are involved, GID recommends the appointment of an escrow agent to manage commission distributions.

Requirements for Intermediaries

Intermediaries are requested to ensure that prospective clients:

1. Complete the application form in full.
2. Confirm their financial capacity to complete the transaction.
3. Provide evidence of available funds if using cash resources.
4. Provide a bank letter confirming financial capacity if utilizing a banking relationship or credit facility.

GID is required to provide the issuing bank with comprehensive information regarding the beneficiary, including:

• Financial capacity documentation;
• Know Your Customer (KYC) documentation;
• Beneficiary details; and
• Intended use of the SBLC.

To streamline the approval process, intermediaries should collect and submit all required documentation at the application stage.

GID will not submit an application to an issuing bank until all required documentation has been received and satisfactorily reviewed.

GID recommends that clients first provide:

• Complete KYC documentation;
• A brief summary of the intended use of the SBLC; and
• A bank letter confirming financial capacity (where applicable).

This information will be used to complete GID’s due diligence process, prepare contractual documentation, and submit the application to the issuing bank.