2. Benficial Interest Transferred Into Trust Collateral Instruments & Guarantees Secured – GIC Formed 10-Yr Term Certain Re-Insurance Guarantee Added GIC TRUST Secures Required Portfolio of Benficial Interest in Death Benefit of Life Ins. Policies of People 70+ Years Old
3. The Collateral Investor’s CD’s Allow for a Compensating Balance for this Financing Structure Collateral is Registered in UCC Filings Against Borrower and the GIC $32.8M Corporate Loan Compensating Balance to GIC Lending Package Arranged CDARS = Certificate of Deposit Account Registry Service - allows $50 million invested in CDs at one bank - all FDIC insured Lending Bank $32.8M Cash Deposit Collateral Investor or QIB GIC $32.8M Face Value $32.8M CDARS 10 Yr Loan to Borrower Interest Cost is tied to CDARS Spread Loan Payments Beneficial Interest $17.1M Collateralized Guarantee (GIC) & Fees $10M Net Cash Infusion to Borrower Operating Account $5.7M 2-Yrs Pre-Paid Int. Reserve Account Optional Equity Kicker Incentives
4. How Guaranteed Insurance Contracts (GIC,s) Are Applied GIC Lending Bank or Syndication of Banks Re-Insurance Guarantee to Pay 100% of Life Insurance Benefits in 10-Year Term Life Insurance Policies Which Transfer Beneficiary Interest to GIC GIC Transfers Beneficary Interest to Bank for Loan Collateral
5. Insured Dies 1 Yr Insured Dies 18 Months Declining Loan Balance as GIC Policies Mature At End of Term Re-insurance Pays all Policies that have not Matured – 100% Guaranteed As Insured Die Policys Pay to Beneficiary Lending Bank or Syndication of Banks GIC $500,000 $1,000,000 $5,000,000 $2,500,000 Beginning Balance $ 32,800,000 Declining Loan Balance -$5,000,000 $ 27,800,000 -$2,500,000 $ 25,300,000
6. Lending Bank or Syndication of Banks Venture Project Borrower Maintains GIC Premium Payments or comes from early Maturity of GIC GIC 50% of Loan = 110% of Project Cost Pre-Pays 2-Yrs Interest Only Pays Yrs 3-10 P&I on Net Loan from Cash Flow 50% of Loan = 100% of Collateral Cost Collateral Value = 100% of Loan Pays 100% Loan P&I Remaining Balance
7. $10M Net Working Capital Example Example indicates equal maturity of GIC years 3 – 10 (assumed scenario) and no maturity until end of term (worst-case scenario), both with P&I payments on the Net Loan per annum years 3 – 10 (Yr 10 also pays off any remaining balance of P&I). Re-insured GIC returns 100% Principal balance plus ROI by end of Term, which fulfils 100% of the Lender/Bank CD yield to Compen-sating Balance Depositor, and covers an assumed Bank spread in Interest Rate to Borrower (see below for additional coverage). Note: The Loan examples used are Principal & Interest on the Net Loan with Yr 10 also making up for Yrs 1 & 2 Interest Only. It can also be structured on other terms and an extended Term beyond the Term of the GIC, per the Bank preferences.
8. Above assumes additional (Minimum) $1M per annum of Cash Flow (after P&I payments have been made, which are entered above) beginning in year 3 & flat ($1M) each year through 10th end of term. Any shortfall in Interest Rate spread from Loan to Borrower can be paid (monthly or per annum) from Borrower business or enterprise EBIT. Note: In both examples, the GIC Premium Payments have been expensed years 3 – 10 in the stated cash flows. Note: This is the same example as the prior slide, however showing additional Cash Flows from the business enterprise beginning in the 3 rd year.
9. Lending Bank ► Receives Cash Deposit from 3rd party Investor or QIB (arranged by Borrower), purchasing a $32.8M 10Yr CDARS from the Lending Bank. ► Bank then loans a compensating amount ($32.8M) to Borrower for a 10-Year Term - receives 2-Yrs pre-paid Interest, and fully compensating collateral of Re-insured Guaranteed Insurance Contracts (GIC) with a face maturity value of $32.8M A-rated and term 100% guaranteed by re-insurance. Lending Bank is the Beneficiary of the GIC. ► Bank receives full P&I payments from Borrower on the Net Loan ($13,934,427) per annum years 3 – 10. Yrs 1 & 2 are paid on the back end Yr 10. ► Bank also takes a 1st (or subordinate to any existing lender secured) position on the Assets Borrower acquires with the Net Capital. ► Borrower also agrees to use the Lending Bank as the depository for all banking trans-actions for the Borrower business. ► The GIC matures at various stages during the Term to the benefit of Bank (beneficiary of GIC) and pays down the Principal in tranches as GIC has maturity events, and any remaining balance is 100% guaranteed and paid at the end of term by the A-rated re-insurance contract. This provides 100% guaranteed return of Principal and a certain however variable IRR.
10. Lending Bank (Cont.) ► Per the example, Bank receives an assumed 10.25% IRR and no worse than 6.36% IRR from the maturity of the GIC. This return is applied against the Borrower Loan Interest cost it ties to the CD. Any off-setting interest deficit is paid to the Bank by borrower from the business or enterprise Cash Flows. Principal is 100% guaranteed and paid from the maturity of the GIC, and also secured by the CD, and additionally secured by the assets acquired by Borrower. ► Lending Bank Will be Able to Demonstrate: ● Minimization of Credit & Reserve Exposure ● Quality Loans on its Books ● Growth of Customer Deposits ● Reduction in Probability of Problem Assets ● Exploits A Unique Market Position
11. Collateral Investor of QIB ► Invests $32.8M with the Lending Bank for the purchase of 10-Yr CD’s at prevailing CDARS rates – FDIC insured. ► CD’s are never at risk, as their is no connection between the CDARS and the Loan to Borrower. The transaction is solely for the purpose of creating a Compensating Balance.
12. Borrower ► Receives a 100% securitized Loan ► No payments for initial 24 Months – Interest payments are financed for this period ► Pays off Yrs 1 & 2 in Yr 10 as a lump sum from GIC and Cash flows ► If development project is able to pay off the principal of the Loan earlier than the 10-Yr Term, the beneficial interest in the GIC is transferred from the Lending Bank to the benefit of the Borrower. GIC can be sold and cashed out early, or flipped to the next transaction of Borrower as the structured collateral instrument (which now has a shorter maturity guarantee, i.e., if in 5-years, the Principal return can be 100% guaranteed in 5-Yrs).
13. Venture Funding Advisors ► In cooperation with Borrower, finds Collateral Investor and assists in negotiating favorable terms and conditions of the transaction as described above. ► In cooperation with Borrower, secures Lending Bank for transaction on the basis of the structure described herein. ► Provides GIC Trust document ► Resources Life Settlement collaterals to the criteria of Re-insurer (see further information on this below). 1 to 1 up to 1 to 1.2+ coverage. ► Resources Re-insurance wrap for a 10-Year fixed date certain – 100% guaranteed pay-off of the balance of Principal Loan and any remaining Interest. ► Third-Party Administrator of the GIC and annual maintenance oversight.
14. www.VFundAdvisors.com Columbus, OH Irvine, CA Miami, FL Jim Nash (949) 485-5252 Structured Compensating Collateral Securitization Finance Strategy