Case Study: SBLC Monetization After Network-of-Contracts Underwriting
Case Study: SBLC Monetization After Network-of-Contracts Underwriting
A corporate client obtained a Standby Letter of Credit from a top tier bank. They wanted “monetization” on day one. We said no. An SBLC is not cash. It is a credit backstop that can enhance a real trade or receivables facility. We agreed to consider funding only after we underwrote the client’s entire network of contracts and mapped cashflows from payers to a controlled collection account.
The Challenge
The client believed the SBLC could be cashed without underlying performance. That is not how real lenders work. No bank will fund against a standby alone without verifying that genuine contracts, logistics, and payers will create cash to repay the facility. We needed proof of demand, delivery mechanics, and enforceable payment rights before considering any draw.
Our Role
We ran a full network-of-contracts review. That included sales contracts and purchase orders, supplier agreements, freight and insurance, inspection and delivery terms, and payer diligence. We graded each payer, modeled cash conversion cycles, set concentration caps, and defined eligibility rules. Only after this work did we structure a facility where receivables were the primary collateral and the SBLC sat behind them as a defined secondary credit support.
Solution Delivered
- Instrument: Standby Letter of Credit governed by ISP98 from a recognized bank, used as secondary support.
- Facility: Revolving receivables line sized to forecast volumes, tenor 90–120 days per invoice.
- Advance Mechanics: 65–80% advance against eligible invoices, haircuts by payer rating and jurisdiction.
- Security: Assignment of receivables, blocked collection account, notice to payers, step-in rights, and, where relevant, title over goods and trade credit insurance.
- SBLC Draw Conditions: Only for defined non-payment after due date and cure period, with documentary proof and compliance to ISP98 wording. No upfront cashing.
- Covenants: Concentration limits by payer and country, minimum insurance, KYC and sanctions clean, FX hedging for non-USD receivables, reporting cadence weekly and monthly.
- Controls: Independent inspection where applicable, shipment and delivery proofs, invoices mirrored to the lender, and audit rights.
Results
The client unlocked working capital tied to real sales. Draws were made against verified invoices. The SBLC improved advance rates and pricing because it reduced tail risk, not because it produced free cash. Collections hit the blocked account and swept to repay the line automatically. No disputes. No drama. Just clean cashflow lending with a credible standby behind it.
Why This Matters
If there are no contracts and no payers, there is nothing to monetize. Real lenders fund cashflows, then use instruments like SBLCs to harden the downside. That is the only sustainable way to “monetize” a standby without drifting into fantasy.
This case study is informational and not legal, banking, or investment advice. Every transaction is subject to independent credit approval, compliance checks, and final documentation. Financely operates on a best-efforts advisory basis and does not guarantee outcomes.
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