Financial Instrument Issuance
Forshaw Capital Group works with partner companies who have facilities to issue Financial instruments.
- BG – Bank Guarantees
- LC – Letter of Credit
- SBLC – Stand By Letter of Credit
- MTN – Medium or Mid Term Notes.
Bank Instruments are used for all kinds of transactions, mainly for import and export trades, and some of the above instruments can be monetized or traded via a licensed and regulated Asset Manager or Trader on the prime market or securities trading platforms.
There are regulated procedures that need to be carefully followed when working with any financial Instruments; these are governed by the ICC – International Chamber of Commerce overall, however each instrument-issuing institution will be regulated under a specific financial governing body such as the FCA, SEC, FINMA and more.
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Letters of Credit
Providing support to businesses of any size or complexity, Letters of Credit can help cover your trading risks by allowing you to protect against defaults on payments from overseas and guarantee your own payments abroad.
Is it right for you?
- You are entering into new relationships with buyers or suppliers in emerging marketsand are looking to trade safely
- Offers exporters non-recourse finance as soon as compliant documentation ispresented with a ‘term’ Letter of Credit
- Letters of Credit often act as ‘gateways’ to a whole range of other internationalproducts and services, such as foreign exchange products and risk mitigation, whereincome benefits can be extensive
- As an exporter, you are looking for security of payment
- As an importer, you wish to strengthen your credit worthiness
How it supports your business
- Gives you the reassurance of a secure, globally recognised method of settling overseas trade
- Offers flexibility to your business needs and payment can be made for any amount and in any freely tradedcurrency
- Allows you to strengthen your trading relationship by offering better credit terms to overseas buyers if youare exporting goods
- Enables you to negotiate improved credit terms if you are importing goods, thereby improving your cashflow
- Your Letters of Credit will be subject to the International Chamber of Commerce’s rules for DocumentaryCredits providing you with reassurance that worldwide standards apply to you and your trading partner
A Instrument that can support your business by demonstrating your financial credibility and ability to meet contractual obligations
Through our sector expertise we understand the importance of Bank Guarantees. As each business and transaction is different, we can work with you to tailor the wording of our Guarantee to support your requirements.
- Help provide specialist support for UK or overseas contracts
- Bank Guarantees can be for any amount (subject to availability of suitable facilities)and in any freely traded currency
- Bank Guarantees can usually be issued in the buyer’s currency
- You want to provide assurance that you can meet your contractual obligations
- Help tender for business that may otherwise have been out of reach
How it supports your business
- Enables you to provide your buyer with a financial commitment to supply goods or services as agreed undera contract
- Demonstrates your financial credibility and underpins your ability to meet contractual obligations
- Enables you to make your proposition more attractive to your buyer
- Allows you flexibility on negotiating contract terms because our Bonds and Guarantees can be issued in thebuyer’s currency
- Guarantees can be issued by top rated bank from the UK as well as other parts of the world
- Provides a choice of standard or bespoke wordings, which will give you and your buyer the Bond orGuarantee that meets your specific needs
Stand By Letter of Credit (SBLC)
A standby letter of credit (SBLC) is a guarantee of payment by a bank on behalf of their client. It is a loan of last resort in which the bank fulfills payment obligations by the end of the contract if their client cannot.
The standby letter of credit is never meant to be used, but prevents contracts from going unfulfilled in the event your company closes down, declares bankruptcy, or is unable to pay for goods or services provided. Standby letters of credit help prove a business’ credit quality and repayment abilities.
The standby letter of credit process is similar to that of obtaining a commercial loan, with a few key differences.
As with any business loan, you will need to provide proof of your creditworthiness to the bank or Provider. However, the SBLC approval process is much quicker, with letters often being issued within a week of all paperwork being submitted.
Unlike traditional loans, the bank will require a standby of letter of credit fee of between 5-10% of the SBLC amount before issuing the letter. This fee is usually charged per year that the letter of credit is in effect. If the terms of the contract are fulfilled early, you can cancel the SBLC without incurring additional charges.
Standby letters of credit can help establish trust with your business partners and be a powerful tool to help meet your business goals.
Medium Term Notes (MTNs)
Medium Term Notes (MTN’s) are debt instruments which are created by banks and sold to investors, having a predefined face value, date of maturity, and annual interest rate.
For example, you may have a 5 year note issued from HSBC Bank worth 100M, collecting a coupon (interest) of 4.5% per year. Each year you would receive 4.5M until the date of its maturity, where you may cash it in for its full face value.
Though an MTN has similar characteristics to other debt notes, it is completely unique due to its flexibility, price, resale potential, and ability to be purchased at a discount from face. Now that you know what a medium term note is, let’s see why they have become so popular recently
Over 50 years ago, when medium term notes (MTN) started to become available, there were very few passive investments which could compete with the benefits of owning a bank instrument. Given the high annual interest rate, possible discount from face value, and solid backing by top 25 banks, many flocked toward those who issued and owned the notes, looking for ways to financially capitalize. Once the idea of “trading bank instruments” caught on in the secondary market, the private placement business grew steadily, until the entire business changed with the introduction of the internet.