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Block Discounting
Block Discounting is a versatile financing option where Conister Bank acquires the rights to receivables from finance agreements with the Borrower (Block Customer), providing immediate access to capital.
Financial Flexibility: Mastering the Mechanics of Block Discounting
The cover ratio (minimum 125%) is calculated using the average Internal Rate of Return (IRR) of the gross receivables divided by the Purchase Price/Advance Rate. It’s a measure to ensure the loan is adequately covered by the underlying assigned receivables.
The advance rate, typically between 70-95%, is based on factors such as dilution (arrears, defaults, and write-offs) and concentration (maximum single exposures). It determines the percentage of funds the Borrower receives against the assigned receivables.
Conister Bank will also expect to take a floating charge over the Borrower’s assets. On each drawdown underlying assets will be secured and assigned to Conister Bank through a deed of assignment.
Capital and interest repayments are structured to match the average repayment profile of the agreements purchased (up to a maximum of 7 years).
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FAQs
What happens if a Block Discounting Facility goes into default?
If default happens, the Borrower has the option to substitute the defaulted agreement with additional receivables (unencumbered assets), which are then transferred to Conister Bank. This arrangement allows for the maintenance of agreed-upon covenants and the security of the Facility.
How does the advance rate work for a Block Discounting Facility?
The advance rate, generally ranging from 70% to 95%, depends on factors such as dilution (arrears, defaults, and write-offs) and concentration (maximum single exposures). This rate determines the percentage of funds that the borrower receives in relation to the assigned receivables.
What are the repayment terms for a Block Discounting Facility?
Borrowers are required to make payments towards both principal and interest over a period that matches the average duration of the agreements purchased, with a maximum term of seven years. This structure ensures a steady reduction of the Facility balance over time.
What documents are required to have a Block Discounting Facility?
Borrowers must submit Anti-Money Laundering (AML) and Customer Due Diligence (CDD) identification, proof of address, and additional relevant documentation to fulfill legal obligations. This adherence to regulatory and legal standards guarantees compliance.