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Contractors World  - UK & Ireland
2014 Vol 4 No 2
 

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Turning a Dream into a Reality - A non-banking financial solution - Page 4 of 5

SchematicThe rise of traded bank instruments, which can be SBLC’s (Standby Letters of Credit), BG’s (Bank Guarantees) - otherwise known as PPP’s (Private Placement Platforms) - has come about since the collapse of the traditional banking sector.

There are others as well, but for the purposes of this article we’ll stick to SBLC’s and BG’s, used predominantly in the USA and Europe respectively.

They are used by companies as a form of payment guarantee when buying and selling products or commodities that have to be transported with payment on delivery.

The buyer collateralizes the instrument with their own money, not the banks. The instrument itself is merely a vehicle for the release of funds when the product or commodity has been delivered.

There has always been a market in trading these instruments but, increasingly since 2008, they have been issued against specific projects, rather than a buy/sell transaction, with the instrument collateralized by private investors.

   They rarely do this directly, it is usually through their hedge fund, asset manager, wealth manager or some other entity that may manage their investments for them.

Both proposals offer virtually unlimited expansion capabilities to meet future demands

There is a direct correlation between the growth in the number of instruments being issued to the number of PPP’s that have appeared on the market.

There are some funding structures that rely simply on the trading profits from the instrument itself.

But the high net worth individuals (HNWI’s) who are increasingly finding their way into this market, much prefer the kind of process shown here where the instrument simply protects their investment for the duration of the loan, as part of a wider structure.

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