Asset Value Protection guarantees the
future value of an asset. Corporations, financial institutions, asset
managers and special-purpose entities use asset value protection to transfer
the risk of asset diminution. By transferring this risk, the owner, investor
or financier of an asset can structure transactions to reduce the cost of
financing, enhance yield, improve liquidity, expand market distribution and
receive favorable tax, accounting and regulatory capital treatment.
Montgomery Moore RE offers a variety
of financial products that provide clients with asset value protection. A
few product examples include:
-
Residual Value Guarantees
Residual value guarantees mitigate the
risk of an unforeseen decline in the market value of a financed asset.
The provider of the guarantee gives the financier of the asset the right
to transfer the asset to the guarantee provider on a certain predefined
date for a specific dollar amount. Assets that are most commonly
financed with residual value guarantees are commercial equipment,
commercial real estate, aircrafts and vehicles.
Equipment manufactures and specialty finance companies use residual
value guarantees to convert capital leases to financial leases for
favorable accounting treatment under FASB 13. Financial institutions and
real estate developers use residual value guarantees to facilitate a
securitization and satisfy rating agencies. Benefits to a lessor of
equipment or real estate include accelerated earnings, increased tax
losses and greater leverage. Benefits to the lessee of equipment or real
estate include lower lease payments and off-balance-sheet treatment.
Residual value guarantees can be structured in a number of forms
including put agreements, insurance and counter-party swaps.
-
Principal Protection
Principal protection is a structured
product that guarantees the future asset value of a principal investment.
By transferring the asset value risk through principal protection,
corporations, financial institutions and asset managers can expose
assets to variable return instruments such as hedge funds while
maintaining a risk equivalent of a highly-rated fixed-income investment.
Principal protection notes can be rated and serve as a fluid asset
allocation tool.
Benefits of transferring the risk of asset value diminution through
principal protection include regulatory capital relief, enhanced returns
and efficient market execution.
-
Guaranteed Investment
Contracts
Guaranteed investment contracts (GICs)
are debt instruments issued by insurance companies that guarantee a pre-defined
yield or a fixed rate of interest. GICs can be structured to guarantee
principal as well as interest. Corporations, financial institutions and
private equity funds can use a GIC product as a form of principal
protection
