Eagle Traders

Negotiable Financial Instruments > This page

Discounting of bank guarantees (BG's)
(Redeeming for cash or raising a credit line)

The "Discounting" of Prime Bank Guarantees (BG's) is based on the following criteria and generally accepted conditions:

Depends on the type of BG, i.e. Face Value (zero coupon); Term Interest Bearing; One Year and One Day; 5, 10, 15, 20 Year; etc.
The preferred BG type is One Year and One Day, but virtually any type of BG is acceptable. The conversion value (Net Cash to Client) may vary dramatically.
Bank Guarantees are defined as those issued by a Major Bank in Europe.
All BG's must be in US Dollars.
All transaction amounts must be in or converted to US Dollars only.
It must be fully understood, the BG is sold outright for a "Cash Value".
The following are some examples of 'Converting a BG to Workable CASH':

Example
Assumes the Bank Guarantee (BG) is the One Year and One Day Type for 1.03 to 1.08 (103 to 108 percent) and issued from a top European Bank.
The following in principal is how the discounting works:

Cash the BG by Selling it outright.

The BG can be discounted at 10+6 percent (10 percent par face value plus the 6 percent interest). Therefore, lets assume 100 million dollars plus the back end of 6 percent maturity value on the face BG amount. This would make the transaction amount have an estimated cash value of 90 Million US Dollars to the client.

The Actual Cash Value on every 100 Million US Dollars (90 Million) would be paid in full at time of transaction and selling of the BG for the full face amount of 100 Million which matures at 106 percent in one year and one day.

The 'Full Cash Amount' is then paid to the client through a Bank-to-Bank wire transfer.

Example
Assumes the bank Guarantee (BG) is for 65 Million US Dollars, interest bearing that matures in 20 years.
The following in principal is how the discounting works:

'Cash' the BG by selling it out right.

The 'BG' can be discounted from 60% to 85% depending on market conditions. Therefore, a 65 million dollar BG is worth in 'CASH' 39 to 55 million.

The 'Full Cash Amount' is then paid to the client through a Bank-to-Bank wire transfer.

Notes

Banks change their policies from time to time, and these are guidelines only.
The BG can be 'Cashed' outright, but 'Credit Lines are more desirable by banks.
The BG after it is 'Cashed' can be put into a High Yield Roll Over Program for Investments (Hyrop). The minimum investment return on a Hyrop to the 'Client' is approximately fifty (50%) percent.
Please see What are "High Yield Roll Over Programs".
The above examples are for BG's issued from Major European Banks.

Hints

BG's are usually issued by a corporation as collateral.
BG's held by individuals are highly questioned by banks throughout the world.
It is generally easier to raise a 'Credit Line' than convert the instrument to CASH!
Fluctuating World Market Conditions set the pace and determine the trading value, if any.
Usually most every instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
Substantiated "Documentation' is needed for this type of transaction.

The following bank guarantees are very difficult to do at the present, and only a 'Credit Line' could be raised:

Any BG issued from any Indonesian Bank
Any BG issued from any Thailand Bank
Any BG issued from any Philippine Bank
Any BG issued from any Malaysian Bank
Any BG held by an Individual in lieu of a company, trust, corporation, endowment, pension fund, or nonprofit entity

The following bank guarantees are not currently tradable:

BG's issued from Russia
BG's issued from Vietnam
BG's issued from Cambodia
BG's issued from Burma
BG's Issued from Laos