Collateral Transfer in Aviation

For more than a decade, we have been assisting companies facing challenges in securing loans and lines of credit through conventional channels, offering them access to capital. Our expert management team at Redeure possesses a unique understanding of global markets, and our highly sought-after financial product, the Collateral Transfer Facility, continues to meet the needs of cash-strapped companies worldwide, providing them access to fresh capital in the form of loans or lines of credit.

Collateral Transfer in Aviation

Collateral Transfer, also known as a leased bank guarantee, involves the transfer of a Demand Bank Guarantee from one company to another. If a bank declines to fund the acquisition of a private jet, Redeure can facilitate access to the necessary capital for the purchase. We maintain a database of Providers, typically hedge funds or private equity funds, willing to offer Demand Bank Guarantees to the Collateral Transfer market.

Companies seeking capital (referred to as beneficiaries) are required, after successful due diligence, to sign a Collateral Transfer Agreement with a provider. A fee, commonly known as the Collateral Transfer fee, is paid to the provider for the use of the Demand Bank Guarantee. Once the fee is received, the provider instructs their bankers to transfer the Demand Bank Guarantee to the beneficiary’s account.

Financing with a Demand Bank Guarantee

A Demand Bank Guarantee, versatile for purposes like advance payment or customs guarantees, can effectively be converted into cash through a loan or line of credit. The International Chamber of Commerce (ICC), established to facilitate cross-border trade and finance, sets the rules and regulations for Demand Bank Guarantees. Adhering to the ICC’s Uniform Rules for Demand Bank Guarantees (URDG 758), the verbiage within the guarantee must be precise for it to serve as security for a loan or line of credit.

Once the Demand Bank Guarantee is credited to the beneficiary’s account, they can request a loan or line of credit from their bank, offering the guarantee as collateral. With the guarantee in place, the bank has security for the loan, allowing the company to proceed with acquiring the desired aircraft. In the event of a default, the provider will place a lien on the aircraft.

In Conclusion

Between 2020 and 2022, the airline industry faced substantial losses, prompting banks to withdraw from aviation financing. In response, capital markets became a crucial source of affordable financing. Although conditions have normalized, Redeure remains prepared to assist clients in securing new capital through options such as Collateral Transfer or syndicated loans.