Reason for annually establishing fixed terms for Collateral Transfer
Collateral Transfer facilities are commonly offered with terms ranging from 12 to 72 months, typically structured as renewable 12-month contracts.
The annual nature of these terms is often tied to the providers’ contracts with their investors, which operate on an annual basis, yielding annual returns. These contracts are frequently linked to 12-month LIBOR or EURIBOR rates.
Providers establish contracts with senior-level investors for a fixed annual return, and the Collateral Transfer rates (Contract Fee) are determined accordingly. In the initial year, the fee is usually a fixed percentage, typically ranging from 6% to 14%, depending on the provider. In subsequent years or upon renewal, the fee may be linked to either LIBOR or EURIBOR, depending on the currency.
Due to these contractual arrangements with investors and the annual return structure, obtaining a Collateral Transfer facility for periods other than the standard annual terms, such as 18 months, may prove challenging.