CORPORATE MULTI-CURRENCY LIABILITY MANAGEMENT

Banking Requirements

ECU currently manages multi-currency loan facilities at 15 banks. However, if a bank has not previously provided multi-currency loan facilities, ECU will be pleased to provide guidance and detailed procedures.

To appoint ECU, a client's lending bank must provide a multi-currency loan facility with separate currency accounts for the following currencies: GBP, USD, EUR, JPY, CHF, AUD & CAD.

ECU switches its debt book from one currency to another by executing spot foreign exchange transactions with one or more of a number of major FX banks. The executing banks give up the trades to ECU's FX prime broker bank, The Royal Bank of Scotland plc, which then allocates the appropriate positions to each of the underlying lending banks.

This arrangement provides ECU with 24-hour market access and ensures both the speed and the quality of order execution. This can be particularly important in fast-moving markets.

Spot FX transactions go to delivery after two business days, so a client's currency risk profile changes at the time of execution and the interest rate profile two days later.

The FX prime broker bank delivers the old (bought) debt currency to te lending banks and the lending banks deliver the new (sold) debt currency to the FX prime broker bank.

The facility should be interest only and interest should not be added to the balance of a loan. Interest is charged at a bank's prevailing cost of funds for each currency, which is the applicable London Inter-Bank Offered Rate plus the bank's lending margin, which will be the same for all currencies.

If regular capital repayments are required by the lending bank, they should be paid into an interest-bearing GBP account and then transferred into the GBP loan account when appropriate.

The lending bank will require a 'Conversion Limit', being the percentage by which the loan can increase above its initial value, without further collateral or security, as a result of adverse currency movements. If breached, the lending bank has the right to convert the loan back into sterling to limit any further increase in the sterling value of the loan. ECU requires a minimum Conversion Limit of 15%. In this respect a client's facility must be for at least 15% more than the drawn amount of the loan.

FOR MORE INFO

To find out more,
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or call +44 20 7399 4600
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"We manage $1.5 billion at 15 different banks, where our clients have multi-currency loan facilities."

Credit Magazine
March 2007


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