Introduction to Structured Finance

The following description has been made to educate individuals and firms on the processes used by a Leveraged Equity Capital Firm and their distinct instrument providers and credit facilities. The subsequent information should not be deemed as advice on program participation or advice on a financial service or tax advice. The information provided is for the decision making process only.

Leveraged Equity Capital (LEC) Firms are new in nature and exist due

to innovations in structured finance. LEC firms utilize the leverage in leased financial instruments and the power of our credit facilities to monetize these instruments and create debt or equity to be placed into projects in all areas of business. We are able to lease collateral enhancement devices to provide the recourse necessary for our credit facility to extend financing for your project. The credit of your project is essentially enhanced by leasing these instruments and using them as collateral in order to secure the loan for the project.

We use various financial instruments as our source of leverage. We use financial instruments that are available for acquisition from sources that are industry leaders and then monetize the project using various Banks who use the Instrument as the primary source of collateral. The financial instruments described herein may include CDs (Certificate of Deposits), SBLCs (Standby Letter of Credits), and BGs (Bank Guarantees) all issued from the top 50 banks of the world as described by the Banker’s Almanac. The secured margin loan that is used in a leveraged equity capital program can be created by most financial institutions that will accept a fully lienable, callable, assignable, transferable, encumberable financial instrument as collateral.

Example

Client, has a project requiring 10,000,000 USD. Client has 1,500,000 USD available in capital in his corporate bank account.

LEC Program Steps:

1. Application Completed

The Submission Form is a simple 3-4 page form, dealing mainly with contact information and your project and we allow you to specify your ideal terms. In addition Email Executive Summary, Development Analysis, Proforma, Resume’s, Evidence of funds and execute the Submission form.

2. Application Approved –Intent to Fund Memorandum sent out (24-48 hours)

Applicants are approved based upon the project and the strength of the principals. Since essentially this is a non-recourse loan, the LEC will carefully select its borrowers based on the experience of the principals, their financial strength, and their vision. There also needs to be a portion of equity contribution. This will be made available to the LEC to leverage a financial instrument and create the assets needed to finance your project. We are concerned with credit, financials, future values, income verification, and background checks however, conventional underwriting guidelines do not apply.

3. Approval Executed with terms and protocols of the Project (10 days)

The Approval will outline the process and describe the responsibilities that each party is held to. It also contracts the scope of the transaction as well as the end terms for the project. The Mandate also identifies and specifies the information needed to form the Financial Instrument Agreement.

Terms of the loan are as follows: Deposit – 15% of Net Proceeds needed Pre-paid Interest – 12 Mo. Interest at 7.5% Paid Up front. No payments Due for first year Amortization – 30 Year fixed 5.5-8.25%; Interest Only Payments; 10 Year Balloon; No Pre-payment penalty.

4. Account Funded (15 business days)

The account is funded with 15% of the total loan amount requested and necessary costs/fees paid to brokers out of the proceeds. The agreed upon amount of capital contribution that was placed with the LEC is fully refundable at the close of the transaction (initial 1.5M). Any costs that may be needed for legal preparation, document drafting, or facilitator service charges are covered in the lenders origination fee. These costs or fees are taken as a net of the capital contributed. Meaning that if our terms stipulate that $1,500,000 is needed for us to fund $10,000,000 then any costs or fees required do not affect the total amount funded. Meaning that when we stipulate $1,500,000 is needed and we require $20,000 for legal costs, then the final funded amount would be $10,000,000 plus initial $1,500,000. Broker fees will be paid out of the Gross Proceeds but will not be affect the Net amount to the borrower. If through no fault of the LEC, the borrower decides to recind the agreement, legal fees of $9,000 would not be refunded and the balance of funds will be released within10 business days.

5. Financial Instrument Secured

Our costs to use an instrument varies from 4%-18.5% of the face amount of the financial instrument. However, we can attain significant leverage depending on the premium. Therefore we can secure an instrument for your projects without the conventional underwriting you are accustomed to. All of the underwriting is done in-house by one of our underwriters and we make the final decisions whether to fund your project before any approvals are issued.

Per the instrument provider’s procedures the instrument is issued and placed on Euroclear/DTC for viewing/blocking. Some providers will use 4.25% others will charge 8% of the face amount of the instrument to be secured for their costs relating to issuing. In our example 4.25% of the face amount of the instrument is around 30% of the funds that are placed in escrow. The released funds are used for issuing, insuring, and transfer costs related to the instrument. The retained

funds are given as proof of funds to the lender to attain the highest LTV upon monetization of the instrument. Once the instrument has been issued (normally 5-7 days), the instrument is placed in escrow to be loaned upon by our credit facility.

6. Monetization

Our Credit Facility monetizes (loans upon) the financial instrument normally at about 82% LTV, with the funds placed into the LEC’s Account. The Credit Facility completes the transaction within 7-10 days. The remainder of the funds are released back to the LEC upon monetization and subsequently returned to the principal of the project upon funding.

7. Funds Disbursed for your Project

The funds are disbursed to you for your project as per the Approval and the note. All funds not disbursed to you for your project directly, are disbursed to the LEC to mitigate project risk and attain profitability. The Instrument is taken out in the name of the LEC making the borrower not liable for retiring the instrument upon expiration. The LEC will retire the instrument after a year and one day, however may have the option to extend the Instrument for additional premium. This means that with the funds not disbursed to your project, roughly 60% of the monetized financial instrument, the LEC is able to introduce this capital to its trade platform for investment purposes.

This is how we are able to remain profitable and offer such competitive terms to commercial ventures. As you can see, through significant leverage, a truly unique funding program has been created.

Due to the significant Dollar amounts needed to secure these instruments, every effort is made to disclose and verify the nuances of this unconventional financing innovation. You can feel comfortable and confident in utilizing this funding process. This document provides all of the details of the transaction and

supporting documentation available on the process with the exception of the actual loan documents, which will match the approval and will be drawn once the loan is monetized and the note is ready to be issued.

Sample Cash Transaction:

Funds Movement Summary     

Equity Contribution $1,500,000          Instrument Written For    $1,500,000

Instrument Value $35,294,118

Instrument Monetized $28,941,176

Funds to LEC (60%) $17,364,706

Funds to Borrowerr (40%) $11,576,471

Instrument Funds Returned $1,500,000

1 Years Interest @ 7.50% $868,235

LEC & Broker Fees (MAX) 6.00% $694,588

Net Funded Amount $10,013,647

Contact our team today for more details on how you can get started & utilize our Structured Finance options to fund your commercial projects! 

www.CommercialFinanceConsultants.com   info@commercialfinanceconsultants.com or call  (859) 215-0619