CO-GUARANTEE OF PROMISSORY NOTES
MUNICIPAL & INSTITUTIONAL GUARANTEES
LIBOR (London Inter- Bank Offered Rate)
THE BANKERS' ALMANAC Ranking: 100 Largest World Banks
Reference
- Irrevocable and unconditional commitment made by a commercial bank (issuing bank) to pay a lender (beneficiary) a specific sum of money.
- Borrower (applicant) applies to issuing bank to issue Standby Letter of Credit (SLC). Sample: Bank SLC Application Form
- SLC’s are not negotiable
instruments and cannot be bought, sold, leased, or traded.
(See: Uniform Commercial Code: www.law.upenn.edu/library/ulc/ulc.htm, SEC Prime Bank Fraud Information Center: www.sec.gov/divisions/enforce/primebank.shtml, and US Treasury Department: www.publicdebt.treas.gov/cc/ccphony9.htm)
- Face amount of SLC covers loan principal amount and all due interest.
- SLC is secured by borrower’s direct pledge of acceptable collateral to issuing bank.
- Issuing bank pays lender only if borrower fails to repay loan.
- Issuing bank charges borrower issuance fee that may be offset from loan proceeds when released into borrower’s account. Typical issuance fee is .25% - .75% of SLC face amount.
- Maximum issuance period is 1 year but can be reissued for additional 1 year periods to assure repayment during entire loan term.
- SLC expires 15 days after maturity date of beneficiary’s draft.
- SLC’s are never issued for “1 year and 1 day.” This is fraudulent language and indicates a fraudulent SLC document. (See: www.sec.gov/divisions/enforce/primebank.shtml and www.publicdebt.treas.gov/cc/ccphony9.htm)
- SLC cannot contain any terms or conditions that render it revocable or conditional. If such revocable and/or conditional terms or conditions are present, SLC document is unworkable.
- Governed under auspices
of International Chamber of Commerce, Paris, France.
(See: www.iccwbo.org)
- May require confirmation if guarantee-issuing bank does not meet the financial size, profitability, and/or capital adequacy requirements of our lending group.
- Letter of Guarantee (LOG) is an irrevocable and unconditional guarantee issued by foreign commercial banks for the repayment of loans.
- Cannot be issued by U.S. commercial banks by law.
- Is secured by direct pledge of acceptable collateral.
- LOG is not governed under the auspices of International Chamber of Commerce.
- LOG is not a negotiable
instrument and cannot be bought, sold, leased, or traded.
(See: www.sec.gov/divisions/enforce/primebank.shtml and www.publicdebt.treas.gov/cc/ccphony9.htm)
- May be issued for more than one year to match borrower’s desired loan repayment term.
- Refers to specific promissory notes issued by borrower to lender.
- May require confirmation if guarantee-issuing bank does not meet financial size, profitability, and/or capital adequacy requirements of our lending group.
- Irrevocable and unconditional guarantee issued by major domestic and foreign insurance companies for the repayment of loans. (See: www.ambest.com)
- May be issued by large U.S. insurance companies.
- This is not an insurance policy, annuity, guarantee payment bond, or surety bond. These are not guarantees. All are revocable and conditional and are based upon the payment of a premium.
- Must be secured by direct pledge of acceptable collateral.
- Refers to specific promissory notes issued by borrower to lender.
- May be issued for more than one year to match borrower’s desired loan repayment term.
- Guarantee instrument issued by major domestic and foreign firms, such as Fortune 500 companies and other large businesses, for the repayment of loans. Evidences indebtedness of borrower to lender.
- Acceptance by our lending group is based upon the unsecured promise of the borrower/issuer to irrevocably and unconditionally repay lender.
- Unsecured - not tied to specific assets of the borrower/issuer.
- Borrower/issuer must have minimum total assets of US $2 billion to qualify.
- Borrower/issuer must provide current audited financial statements to CAF, including Annual Reports, Interim Statements, and current 10-K and 10-Q Reports (if applicable) and demonstrate profitability in the current period and each of the last 2 consecutive reporting periods.
- May be issued in amounts and maturities specified by lender.
Co-Guarantee of Promissory Notes
- An accepted, major commercial bank or other accepted guarantor may co-guarantee the repayment of promissory notes issued by the borrower in favor of lender.
- This is called “guarantee par aval.”
- Every borrower, in every loan transaction, must issue promissory notes in favor of the lender as beneficiary.
- Promissory notes evidence the indebtedness of borrower to lender.
- In a typical loan transaction, the guarantee instrument assures that the promissory notes will be honored by the borrower.
- In this type of transaction, the borrower commits to honor the repayment of the promissory notes, and the co-guarantor bank guarantees, irrevocably and unconditionally, to honor the repayment of the promissory notes if borrower defaults.
Municipal/Institutional Guarantee
- Irrevocable and unconditional guarantee instrument.
- May be issued by major domestic and foreign municipalities, municipal agencies, institutions, colleges, universities, pension funds, endowments, foundations, and trusts for the repayment of loans.
- May be issued by these special
entities as borrower and guarantor.
(See: The Loan: Structure of the Loan)
- May be issued on a self-liquidating
basis.
(See: The Loan: Structure of the Loan)
- Very simple, straightforward language.
- May be issued for more than one year to match borrower’s desired loan repayment term.
- London Interbank Offered Rate (LIBOR) is the base rate of interest at which banks offer to lend money to one another in the wholesale money markets of London.
- LIBOR is determined daily by a
panel of major British banks under auspices of British Bankers’
Association, and in accordance with the British Financial Services Authority,
which regulates British banks.
(See: www.bba.org.uk for more information and daily quotations of LIBOR up to 1 year)
- LIBOR is a function of supply and demand for funds in Euromarket locations.
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- Some guarantee-issuers are not accepted by our lending group because they do not meet our financial size, profitability, and/or capital adequacy requirements.
- The guarantees of some sovereign nations are not accepted because of adverse economic and/or geopolitical circumstances and/or the imposition of international economic sanctions. CAF cannot provide private lending services to such nations.
- An unaccepted guarantee-issuer may arrange for an acceptable confirming bank or other guarantee-issuer to “confirm” its guarantee.
- Confirmation is an irrevocable, unconditional commitment by a major commercial bank or other acceptable guarantee-issuer to back-up the primary guarantee-issuer.
- Confirming bank steps in to pay the Lender only if the primary guarantee-issuing bank or other guarantee-issuer fails to honor its guarantee to the Lender's bank if the borrower defaults.
- Accepted confirming banks are major,
international commercial banks including, but not limited to, the top
world banks ranked on the basis of Total Assets by The Bankers’ Almanac.
- Confirming bank must have minimum Total Assets of US $10 billion and be listed in The Bankers’ Almanac.
- Major correspondent banks of unaccepted guarantee-issuing banks are excellent candidates as confirming banks.
- By obtaining an acceptable confirmation, the guarantee-issuing bank assures the borrower that the loan interest rate will be the lowest possible (margin over LIBOR in lowest range, .50% - .75%), maximum loan term will be longest (7 years), plus other benefits.
- Borrowers need to be alert to a wide range of fraudulent activities perpetrated globally, designed to obtain upfront fees to buy and sell illegal, nonexistent securities, “bank instruments,” prime bank notes, prime bank guarantees, high-yield trading programs, collateral provider services, and other bogus products and services.
- Only the borrower and/or its financially interested/vested partner would provide collateral to secure a guarantee.
- Borrowers often pay substantial upfront fees to a fraudulent “collateral provider” that promises to deliver collateral to secure a guarantee, only to learn later that their fees disappeared along with the collateral provider.
- Borrowers that pay such advance fees typically have no ability themselves to legitimately provide an acceptable guarantee and are fair prey for these unscroupulous operators.
- These pervasive, fraudulent activities have been flourishing worldwide for many years and have generated significant financial losses for unsuspecting victims.
- Borrowers should "NEVER" pay up-front fees to a lender, or pay fees of any kind to purchase, lease, rent or use collateral or to secure guarantees.
- Firms or persons soliciting such fees should be immediately reported to the FBI, Interpol, or other government authorities.
- You can visit the U.S. Securities and
Exchange Commission and U.S. Treasury Department web sites, respectively,
to learn more about these highly pervasive and fraudulent activities. (See:
www.sec.gov/divisions/enforce/primebank.shtml
and www.publicdebt.treas.gov/cc/ccphony9.htm)
L.A. Times article regarding a "High-Yield" fraudulent investment scheme
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