CAF - Gurantees

Guarantees

The Basics

Borrower arranges for an acceptable guarantee-issuer to provide an irrevocable and unconditional guarantee in favor of the Lender's bank for repayment of the loan principal amount and all due interest.

The Lender's bank provides loan proceeds to the guarantee-issuer, which subsequently releases the proceeds to the borrower.

Borrower then begins to repay the loan.

When the loan is fully repaid, the guarantee expires.

If borrower defaults, guarantee-issuer must irrevocably and unconditionally pay the Lender's bank the deficiency amount.

Guarantee fully eliminates the risk of loan loss for the Lender so we can provide an excellent interest rate and exceptionally beneficial terms and conditions to the borrower.

Collateral of any kind cannot be accepted in place of a guarantee.

Collateral may be pledged to an acceptable guarantee-issuer to secure the issuance of an acceptable guarantee.

The Lender's bank will then provide loan funds secured by the guarantee.

Acceptable Guarantees

Standby Letter of Credit (large U.S. and foreign banks).
(See: Reference Section: Standby Letter of Credit)

Letter of Guarantee (large foreign banks only).
(See: Reference Section: Letter of Guarantee)

Unsecured Promissory Notes of a qualified Fortune 1000 company or other major international firm.
(See: Reference Section: Unsecured Promissory Notes)

Fortune 1000 companies that qualify may be direct borrowers or guarantors for other firms.

Municipal/Institutional Guarantee of a large municipality, municipal agency, or institution.
(See: Reference Section: Municipal/Institutional Guarantee)

Co-guarantee of borrower’s Unsecured Promissory Notes by an accepted, major bank or other acceptable guarantee-issuer.
(See: Reference Section: Co-Guarantee of Promissory Notes)

Sovereign guarantees of many foreign countries are accepted.
(See: www.worldbank.org, www.moodys.com, www.fitchrating.com, and
www.economist.com for sovereign information)

Sovereign government guarantees are Standby Letters of Credit (SLC) issued by a designated commercial bank in the subject foreign country at the direction of authorized government officials.

Government’s irrevocable, unconditional commitment for loan repayment to its designated issuing bank and the Lender's bank secures the issuance of SLC.

Central banks may authorize the issuance of sovereign guarantees but do not generally issue guarantees directly.

Some sovereign government guarantees must be “confirmed” by major, foreign banks due to adverse economic conditions in those countries. (See: Reference Section: Confirmation)

Assignments of guarantees cannot be accepted.

How the Guarantee Works

To obtain a guarantee, the borrower must first make a formal application to its bank, insurance company, or other acceptable guarantee-issuer for approval for the issuance of a guarantee.

The Borrower makes a direct pledge of collateral to the guarantee-issuer.

Some borrowers may already have collateral pledged to the guarantee-issuer in the routine course of their existing business relationships.

Other borrowers may already have bank lines of credit with unused capacity.

Such unused capacity may be converted into a Standby Letter of Credit or Letter of Guarantee, subject to approval by the bank.

Collateral

Cash and time certificates of deposit.

Marketable securities including stocks, bonds, notes, ADR’s, warrants, options, commercial paper, and bankers’ acceptances.

Mutual funds, United States government and traded foreign securities, municipal bonds, and medium term notes.

Unencumbered real estate equity.

Ownership of business interests and loans receivable.

Cash value of annuities, life insurance policies, and guaranteed investment contracts.

Fixtures, furniture, equipment, inventory, and receivables.

Copyrights, patents, trademarks, and other intellectual property.

Obtaining the Guarantee

Borrower must have sufficient financial resources to secure the issuance of an acceptable guarantee and repay the loan.

Borrower makes direct pledge of collateral to guarantee-issuer.

Guarantee-issuer will evaluate proposed collateral to determine whether it conforms to its acceptability standards.

It then performs credit analysis to determine the value of collateral - present value, future value, liquidation value, market value.

If analysis determines collateral insufficiency, borrower may be required to increase amount of collateral pledged.

Guarantee-issuer will then calculate the ratio of collateral-to-guarantee value. This percentage of collateral value supports face amount of guarantee to be issued.

Guarantor Qualification

Banks

Must be listed in The Bankers' Almanac international banking directory.
Must have current Total Assets of US $5 billion + for loans over US $50 million.
Listed banks having Total Assets less than US $5 billion will be considered for loans under US $50 million.
The guarantee-issuing bank will syndicate the guarantee commitment among other banks if the guarantee face amount exceeds 10% of its Paid-up Capital.
(See: Reference Section: Bankers' Almanac Ranking: 100 Largest World Banks)

Fortune 1000 Companies and other large firms

Audited financial statements must show profitability for current period and last 2 consecutive reporting periods.
Must provide CAF with 4 copies of current Annual Report, 4 copies of current Interim Statement, 4 copies of current U.S. Securities and Exchange Commission 10-K and 10-Q Reports (if applicable).

Sovereign Nations

Acceptability of Sovereign Guarantees will be determined by our lending group on a nation-by-nation, case-by-case basis.

Municipalities and Municipal Agencies

Must be a relatively large, recognized municipality, domestic or foreign.
Must be rated by Moody’s, Standard & Poors, Fitch IBCA, and/or Duff & Phelps rating agencies.
Specific Letter/Number Rating of municipal bonds/securities must fall within “Investment Grade” category range, and issuer cannot be in default
(See: www.moodys.com, www.standardpoor.com, and www.fitchratings.com)

Institutions, Colleges, Universities, Pension Funds, Foundations, Endowments, and Trusts

Must be rated by Moody’s, Standard & Poors, Fitch IBCA, and/or Duff & Phelps rating agencies.
Must be a relatively large, recognized entity, domestic or foreign.
Must provide audited financial statements for the current reporting period and last 2 consecutive reporting periods.
Audited financial statements must show profitability in each of these 3 reporting periods.
Guarantee instrument may be Municipal/Institutional Guarantee, Standby Letter of Credit, or Letter of Guarantee.