Structured Compensating Collateral Securitization 1.3a

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Structured Compensating Collateral Securitization Finance Strategy Venture Funding Advisors, LLC www.VFundAdvisors.com Columbus, OH Irvine, CA Miami, FL

Transcript of Structured Compensating Collateral Securitization 1.3a

Page 1: Structured Compensating Collateral Securitization 1.3a

Structured Compensating Collateral Securitization Finance Strategy

Venture Funding Advisors, LLCwww.VFundAdvisors.com

Columbus, OH Irvine, CA Miami, FL

Page 2: Structured Compensating Collateral Securitization 1.3a

Benficial Interest Transferred Into Trust

GICTRUST

Collateral Instruments & Guarantees Secured – GIC Formed

10-Yr Term Certain Re-Insurance Guarantee Added

Secures Required Portfolio of Benficial Interest in Death Benefit of Life Ins.

Policies of People 70+ Years Old

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The Collateral Investor’s CD’s Allow for aCompensating Balance for this Financing Structure

Lending Bank

Collateral is Registered in UCC Filings Against Borrower and the GIC

$32.8MCorporate

Loan

$32.8M Cash Deposit Collateral Investor

or QIB

GIC

$32.8M Face Value

$32.8M CDARS

10 Yr Loan to 10 Yr Loan to BorrowerBorrower

Interest Cost Interest Cost is tied tois tied to

CDARS SpreadCDARS Spread

Compensating Balance to GIC Lending

Package Arranged

Loan PaymentsBeneficial Interest $17.1MCollateralized

Guarantee (GIC) & Fees

$10MNet Cash Infusion

to BorrowerOperating Account

$5.7M2-Yrs Pre-Paid Int.Reserve Account

CDARS = Certificate of Deposit Account Registry Service - allows $50 million invested

in CDs at one bank - all FDIC insured

Optional Optional Equity KickerEquity Kicker

IncentivesIncentives

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Lending Bank or Syndication

of Banks

Re-Insurance Guarantee to Pay 100% of Life Insurance Benefits in 10-Year Term

Life Insurance Policies Which TransferBeneficiary Interest to GIC

GIC Transfers Beneficary Interest to Bank for Loan Collateral

How Guaranteed Insurance Contracts (GIC,s) Are Applied

GIC

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Insured Dies 1 Yr

Lending Bank or Syndication

of Banks

GIC

$500,000

$1,000,000$5,000,000

$2,500,000

Insured Dies 18 Months

Beginning Balance $ 32,800,000

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

Declining Loan Balance

-$5,000,000 $ 27,800,000-$2,500,000 $ 25,300,000

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Lending Bank or Syndication

of Banks

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

VentureProject

Borrower

50% of Loan

= 100% of Collateral Cost Collateral Value = 100%

of Loan

Pays 100% Loan P&I Remaining Balance

Maintains GIC Premium Payments or comes from early

Maturity of GIC

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$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.

E1 10-Yr GIC & 10-Yr P&I on Net Loan Variable Input for VFA Fees$32,786,886 Gross Loan$13,934,427 Net Loan For Each Tranche Of:$10,000,000 Capital to Borrower$5,703,972 Pre-Paid Interest Gross Loan-$1,769,546 Loan Fees Assiciated Costs Equity at 25% of Total$13,934,427 Net Loan or 50% of Column W

Paid One Time - ShownYr -$32,786,886 Gross Cost of Money Hereunder if Paid that Yr.1 $5,703,972 2-Years Pre-Paid Interest on Gross Loan2 $0 3 $5,542,497 Assumed GIC Maturity + P&I Payment4 $5,703,972 Assumed GIC Maturity + P&I Payment5 $5,865,448 Assumed GIC Maturity + P&I Payment6 $6,026,923 Assumed GIC Maturity + P&I Payment7 $6,188,398 Assumed GIC Maturity + P&I Payment8 $6,349,874 Assumed GIC Maturity + P&I Payment9 $6,511,349 Assumed GIC Maturity + P&I Payment

10 $10,385,642 Assumed GIC Maturity + P&I Payment + 2 Yrs.$58,278,075 ROI

10.25% IRR

Yr -$32,786,886 Gross Cost of Money1 $5,703,972 2-Years Pre-Paid Interest on Gross Loan2 $03 $708,867 Worst-Case GIC Maturity + P&I Payment4 $872,802 Worst-Case GIC Maturity + P&I Payment5 $1,036,736 Worst-Case GIC Maturity + P&I Payment6 $1,200,671 Worst-Case GIC Maturity + P&I Payment7 $1,364,605 Worst-Case GIC Maturity + P&I Payment8 $1,528,540 Worst-Case GIC Maturity + P&I Payment9 $1,692,474 Worst-Case GIC Maturity + P&I Payment

10 $40,323,324 Worst-Case GIC Maturity + P&I Payment + 2 Yrs.$54,431,992 ROI

6.36% IRR

8.30% Averaged IRR (Assumed & Worst-Case)

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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 3rd year.

Calculated with Cash Flows (AB14 - AB43)E2 10-Yr GIC & 10-Yr P&I on Net Loan

$32,786,886 Gross Loan$13,934,427 Net Loan$10,000,000 Capital to Borrower$5,703,972 Pre-Paid Interest Gross Loan-$1,769,546 Loan Fees Assiciated Costs$13,934,427 Net Loan

Yr -$32,786,886 Gross Cost of Money1 $5,703,972 2-Years Pre-Paid Interest on Gross Loan2 $0 3 $7,542,497 Assumed GIC Maturity + P&I Payment & Cash Flow4 $7,703,972 Assumed GIC Maturity + P&I Payment & Cash Flow5 $7,865,448 Assumed GIC Maturity + P&I Payment & Cash Flow6 $8,026,923 Assumed GIC Maturity + P&I Payment & Cash Flow7 $8,188,398 Assumed GIC Maturity + P&I Payment & Cash Flow8 $8,349,874 Assumed GIC Maturity + P&I Payment & Cash Flow9 $8,511,349 Assumed GIC Maturity + P&I Payment & Cash Flow

10 $12,385,642 Assumed GIC Maturity + P&I Payment + 2 Yrs + CF$74,278,075 ROI

15.14% IRR

Yr -$32,786,886 Gross Cost of Money1 $5,703,972 2-Years Pre-Paid Interest on Gross Loan2 $03 $2,708,867 Worst-Case GIC Maturity + P&I Payment + Cash Flow4 $2,872,802 Worst-Case GIC Maturity + P&I Payment + Cash Flow5 $3,036,736 Worst-Case GIC Maturity + P&I Payment + Cash Flow6 $3,200,671 Worst-Case GIC Maturity + P&I Payment + Cash Flow7 $3,364,605 Worst-Case GIC Maturity + P&I Payment + Cash Flow8 $3,528,540 Worst-Case GIC Maturity + P&I Payment + Cash Flow9 $3,692,474 Worst-Case GIC Maturity + P&I Payment + Cash Flow

10 $42,323,324 Worst-Case GIC Maturity + P&I Payment + 2 Yrs + CF$70,431,992 ROI

10.63% IRR

12.88% Averaged IRR (Assumed & Worst-Case)

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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.

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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

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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.

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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).

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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.

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www.VFundAdvisors.comColumbus, OH Irvine, CA Miami, FL

Jim Nash(949) 485-5252

Structured Compensating Collateral Securitization Finance Strategy