LINE OF CREDIT ASSET PLEDGE PROGRAM
**INTERNATIONAL FINANCING AVAILABLE**
The Line of Credit Asset Pledge Program is new as of 2020. It was designed to allow clients easy access to funding with less initial requirements and less restrictive timelines. Some clients find the 80/20 Private Loan Program problematic, it takes time to set up the loan, the drawdown schedule can sometimes cause timing challenges, and also clients having trouble to raise the required initial deposit of 20% in initial funds. Hence, the lender rolled-out to offer an alternative that eliminates those potential roadblocks and introduced the "Line of Credit Asset Pledge Program."
HOW DOES IT WORK?
With the Line of Credit Asset Pledge Program, unlike the 80/20 Program, clients are not required to have already raised any initial funds. To participate in this program, the client must have:
(a) a project ready to execute that requires a minimum $5mm in funding, and
(b) a stable banking relationship with an institutional lender that will be able to set-up an appropriate credit line for the project.
**Please note, there is currently no maximum to the size of the project to participate**
In this program, the lender will work with the client and their bank to set up a dedicated credit line that will be underwritten 100% by the lender's assets. This credit line would be in the amount that will fund the client's project, and also provide an equal amount of credit extended to the lender for use in its own programs. In effect, the client's bank will set up a line of credit for at least TWICE the amount of the project requires. The lender will provide the Client's bank the amount of pledged assets they require to set up the credit line, either through a:
Safekeeping Receipt ("SKR") issued from G4S (most common)
a Letter of Credit issued from Uni Credit in Italy, and or
an Asset Pledge of gold bullion from the Italian Central Bank, to be confirmed via SWIFT (whichever the bank prefers to use)
For example, if your project requires $50mm in funding, you would request your bank to set up a $100mm credit line, which would be allocated as 50% for your project, and 50% to the lender (defined through an agreement between the client and the lender).
The lender will sign an agreement with the client that will assign 50% of the Credit Line to the lender, as well as making the lender responsible for the portion of the Credit Line that the lender is utilizing. Please note that it is always the lender Gold that will back the entire credit line principal. Think of this arrangement like having a two separate Credit Line, and one for the lender and one for the client, and it is important to note that the client still has the full of access to the full amount (e.g. $50MM as an example), and the lender will be responsible for their portion of the Principal & Interest, and the client also will be responsible for their portion of Principal & Interest as well. Please keep in mind in this 100% financing, the lender is assuming 100% of all risk, for ALL PARTIES. There is no collateral being pledged by the client. The real collateral is the project itself, and thus, the project must be a profitable project.
Since the lender is assuming full liability for underwriting the client's project, the lender will be taking an equity position in the project doing so. The level of equity position will be determined on a case-by-case basis, based on expected EBITDA, and will be part of the contract set up between the client and the lender.
WHO IS THIS PROGRAM AVAILABLE TO?
The lender would consider all projects that are ready to execute and have a solid business plan backing it. As long as the opportunity is determined to be a good one, then the lender is open to virtually any type of business that is not illegal or located in a politically sensitive jurisdiction.
All the clients need to be able to bring to the table to have the project considered for full underwriting/funding is a bank/banker that will be Ready, Willing, and Able to set up the Credit Line, backed by the asset of their choice.
Once the bank has issued their offering/confirmation, the lender requires that the Client provide sufficient information about their project, in case of an eventuality where the lender may end up holding the note for the loan.
For instance, if the project is not completed at the end of the Line of Credit to the bank and would then become the Lender of Record. The lender needs to collect information and set up some documentation about the project to be prepared for that eventuality (as well as be apprised of the client's use of funds, as the lender is completely underwriting their portion of the Credit Line using the lender gold with the bank). The terms of the loan contract would only become active if the lender ended up holding the loan.
The uniqueness of this program is that for participating clients is that they have zero risk position. As mentioned earlier the lender assumes 100% risk for ALL PARTIES. Clients are not required to have the initial funds like the 80/20 Program, they never have to escrow any money - NOTHING! They simply facilitate putting the lender bankers in touch with their banker that have expressed interest in participating.
Please note under this program, the client will be borrowing money ONLY from their own banking partner. The lender simply assisting with the facilitation of that loan and providing the underwriting. The lender will also be borrowing from the same bank (on the credit line ) the bank will require a great deal of information about the lender and its principals. The bank, as a lender, will be provided this information from their own bankers on a bank-to-bank basis, to fulfill their CIS requirements. They will be able to internally confirm all details about the lender business and operations. However, the lender will not be providing this information to clients participating in the program, as the lender is not borrowing anything from them, and their own banker will confirm the legitimacy of the lender part in the undertaking.
The lender will perform its own due diligence/risk assessment on the client project to ensure that they are comfortable backing it.
A STEP-BY-STEP ILLUSTRATION
FROM APPLICATION TO FUNDING
There is a specific process to follow to quickly get these documents in place:
The client contacts their Bank and states that they have a 3rd Party Lender willing to pledge asset (Gold Bullion) to them if the Client's bank will provide a Credit Line against the asset (in twice the amount required to fully fund the Client project). Please note that in limited cases, the lender will entertain a fully non-recourse loan in return for the asset being blocked for a PPP Trade.
If the Client's bank will provide a Credit Line against the asset, the Client requests written confirmation from their bank indicating:
(a) Their offered LTV against the asset
(b) The cost per year of the Credit Line and any other associated costs
(c) The term of the Credit Line
(d) The time period for the asset being blocked to the Credit Line
(e) Whether the Credit Line is "Recourse," or "Non-Recourse"
Once the bank has issued their offering/confirmation, the lender will require that the Client provide sufficient information about their project, in case of the eventuality that the lender may end up holding the note for the loan. For instance, if the project is not completed at the end of the LOC term (or if the bank calls the LOC early), the lender would need to pay out the LOC to the bank and would then become the lender of record. The lender needs to collect information and set up some documentation about the Client project to be prepared for that eventuality (as well as be fully apprised of the Client's use of funds, as the lender is completely backing their portion of the LOC with the bank).
The Process of Setting Up The Lender Documentation:
Complete and return the full Application Package. This will consist of:
(a) Project/Client Solid Business Plan
(b) Expected Us of Funds / Drawdown Schedule
(c) Lender Loan Application Form:
If the applicant is a corporation or LLC, a copy of the "Articles of Incorporation"
If the applicant is a corporation or LLC, a "Board Resolution" stating that the applicant has the authority to act on behalf of the corporation
(d) Initialed and signed lender "FAQ" document
(e) Copy of Passport of Application Signatory
2. The lender performs due diligence analysis of the application package
3. If the project is approved, a non-binding Term Sheet is issued, and generally within 7 - 10 business days. To be clear that the Term Sheet is not the Final Loan Document, and it is a non-binding agreement. It simply states three facts: the interest rate, the term of the loan amount. It is NOT a contract.
4. The Term Sheet is executed between the Client and the lender
5. The lender provides a draft Asset Pledge Agreement to the Client
6. The client works with their bank and confirms the counterparty and/or assignee for the Asset Pledge Agreement, and specific terms of the agreement are finalized.
7. The Asset Pledge Agreement is executed
8. An Irrevocable Pay Order (part of the Loan Documents) is lodged with the Client's bank. This is provided to the lender with an authority to verify directly with the Client's bank to ensure that the Client's bank has any and all information required to complete this transfer without delay.
9. The Client provides their bank officer with a copy of the executed Asset Pledge Agreement and the lender provides their bank with a copy of the executed Asset Pledge Program.
10. The lender receives confirmation from their Banker that the allocation and assignment as per the Asset Pledge Agreement have been completed and the lender confirms the same to the Client.
11. The Client's bank through their normal banking channels confirms with the Lender's bank the Asset Pledge on a bank-to-bank basis.
12. The Client's bank the Lender's bank work together to complete the blocking procedures for the Asset, and the Asset is blocked in favor of the Client, or more likely, the Bank itself.
13. Each bank officer confirms to their respective clients that the assets have been blocked. This date is confirmed by both parties and their bank to ensure the irrevocable pay order is within the expectation set by the bank.
***The remaining steps describe the process of finalizing the documents between the Lender and the Client, in any instances where the Lender could eventually become the Lender of Record.***
14. The Loan Documents between the Client and the Lender are prepared.
15. The Loan Documents are executed.
16. The Client's Bank finalizes the Credit Line setup.
17. The costs of the Credit Line, for the agreed period of time, are set aside.
18. The Client's bank executes the Irrevocable Pay Order, as previously lodged with the bank.
19. The Client draws down their portion of the Credit Line, as outlined in the Loan Documents.
ARE THERE ANY FEES IN SETTING UP THE LINE OF CREDIT?
No Upfront Fees
No Engagement Fees
No Retainer Fees
The Client's bank may charge some fees to set up the Line of Credit. If they do, these can be paid directly out the Line of Credit proceeds, once it becomes available.
The lender will charge each participating client/project a 3% structuring fee, which is due upon close of the deal (when the line of credit funds become available). This fee will cover all costs of setting up the financing with the bank, including the papering of the bank credit line, the setting up of the contracts between the Lender and the Client, and the setting up of the security required by the bank to back the credit line. This fee can be paid directly from the credit line proceeds and can be included as a financing cost in your project budget.
Our consulting fee is 1.75% of the gross loan amount, and is due upon the close of the deal, and when the LOC funds become available. This fee can be paid directly from the credit line proceeds and can be included as a financing cost in your project budget. Please note that there is no fee shall be due to a consultant unless the client successfully receives funding.
Since the Lender is assuming full liability for the Client's project and Credit Line (by underwriting it 100% with the bank through their assets), and to ensure the program is being managed effectively and efficiently, the Lender will assign an independent 3rd Party Project Custodian, which is Price Waterhouse (PWC) to the Client's project to protect their interests. PWC will liaise on a monthly basis with the client to provide oversight on the project, ensure that the funds are being utilized appropriately and that the project remains on schedule and on budget. Later in the project, PWC will ensure the project revenues are being disbursed appropriately to repay the amount owing on the loan. The Custodian assigned to this project from the time that the funding starts until the loan is fully repaid.
The assigned Custodian will levy a flat $5,000/month Management Fee for their oversight services on the project, which will be invoiced by them once monthly. This will be paid directly to PWC (the Lender does not derive any revenue from this process).
Please contact us for more information