What is a SBLC Provider?
A Provider is the party who enters the Collateral Transfer Contract (or the Collateral Transfer Agreement, “CTA”) with the Principal or Recipient. A Provider will typically be a private equity firm, a hedge fund or wealth manager or indeed a family office, managing funds on behalf of their clients or investors.
The Provider will place their funds (the underlying funds) with the Issuing Bank who will ultimately issue the Collateral in the appropriate medium, often a Bank Guarantee.
The Provider may use their own funds but it is more common that Providers represent their investors who will invest funds with them in order to enter Collateral Transfer commitments.
Sometimes, Providers may utilise Private Label Funds or White Label Funds in which to make their commitments. Involving up to 7 single investors at a time to create the Commitment Fund (the underlying asset) to which the commitment medium is raised against and issued to the Recipient.
Although the Recipient may see a single commitment with a Provider for up to a total amount of €100 million, behind the scenes this could represent up to 7 investors’ contributions. The Provider of course taking liability to provide a return to each investor and therefore sharing the Contract Fees between the investors