Copyright 1998 (You are free to redistribute this material widely provided
that there is no change in its contents and complete attribution is made.)
We prefer to use the following method of transactional funding for
humanitarian endeavors, scientific research, education, infrastructure and
works of social interest that can not be easily funded other way, however,
this same method can be applied to fund a variety of enterprises,
including those that are too risky for conventional funding and those in
the conceptual stage.
Program Description
The program is conceptually simple and keeps the money in the country (as
well as the depository bank if it does the transaction) while it brings in
external funds, usually in USD.
We use cash (investment money or proprietary funds) to buy specially
structured Certificates of Deposit or similar instruments (hereafter, "the
Instruments") and borrow against them using interest only-balloon payment
loans.
The resulting flow of interest payments from the Instruments is then
treated as an annuity and discounted to its present value and then, sold
into the open market. (This is precisely the reason there is no need for
funds to exit the bank, in fact, this causes that net funds to come into
the system.)
How the interest is paid: From the proceeds of this discounted flow of
interest coming from the Instruments, a quantity enough for the creation
of a high yield debenture forfaiting program or other leveraged way of
producing the necessary income to service the interest on the loans is
set. This is done, at least, until the present value of the interest
payments on the loan (calculated at the interest rate of the loan) plus
some margin of safety is attained and a sinking fund from where the
interest on the loan can be paid is created.
How the principal is paid: The loans principals are paid when the
Instruments mature and their principal is paid to offset the loan
principal debt (the Instruments are repatriated) and the interest is paid
as described above (BTW, we expect, in most cases, to pay 4% net spread to
the bank(s) or more). The projects do not have to pay back the funds.
Investors are paid 2% of the funds per tranche (and, depending on the
investment funds available, many tranches and other enhancements can be
done).
The cycle can be repeated as long as necessary to fund the projects. Each
time this process is repeated, the loan proceeds are used to buy
additional Instruments which will serve as collateral for additional loans
until the desired volume is reached. The purpose of all this is to create
a flow of interest payments from the Instruments large enough to, when
discounted, produce the necessary funds to cover all funding, interest
servicing and expenses. All the transactions are calculated upward by
adding all the fees, commissions and any other costs and project funding
(interest servicing is taken from the discounted flow of interest of the
Instruments).
An example: Under our model, a transaction in which a project, plus
intermediation and consulting costs are 50 Million USD and 5 Million USD
are available for investment, will represent a total transaction volume of
500 Million USD done in 100 tranches of 5 M USD. At a 4% net spread, this
will represent 20 Million USD net profits per annum for the bank
(excluding originating fees, which can be added to the gross amount to be
funded, which is from where we calculate the transaction), at 2% per
tranche, the investors will receive a 200% return in a very short period
of time. All the interested parties will receive also during this period
their commissions and fees (which we add to the gross amount to be
funded).
How can 5 Million USD produce all this money flow? Is just the magic of
serial cash collateralized simultaneous borrowing and reinvesting at full
face value, and the discounting to its present value of the consequent
flows of interest (please, note that most of the proceeds from the
discounted interest flows go to produce the means of servicing the
interest on the underlying cash collateralized loans).
We have all the necessary formulas, mechanisms and structure in place for
the implementation of the discounting, selling, trading and investment
related to the program and are ready, willing and able to proceed.
If you are an accredited investor (s), and institutional investor (s), a
government with some funds to invest (money will not exit your bank if
your bank do the transaction), a banker or other interested party, you are
encouraged to e mail me. If you did business with me in the past and are
in position to participate, please, e mail.
If you are interested to explore the possibility of implementing this in
your country, I can travel and be contracted as a consultant, if after
adapting the method to your particular circumstances, you want to proceed,
I'll be happy to transact for you.
Francisco Lopez
Transactor
[email protected]