Specialist Australian finance house Crossway Capital says it has developed a letter of credit (L/C) based structured finance product for major infrastructure projects that has hitherto only been available in the US.

The direct pay L/C (DPLC) has apparently been in use in the US for three decades and has been used to provide project financing for municipal, real estate and some corporate customers.

Augmented lending

The DPLC can augment what banks are able to lend. So, if an applicant has a US$500 million hospital to build, the bank may only be able to directly lend, for example, US$50 million, but can then prepare a DPLC to cover the balance. Alternatively, the DPLC can be structured to fund the full loan amount.

According to Sydney-based Crossway Capital, the DPLC enables any tier-1, regulated bank to act as a direct conduit between the client and US capital markets providing the entire facility, or supporting what the bank can lend.

Bank's role

Working with one of a number of specialists providing the capital market access, the DPLC is issued by the bank to the client. The bank acts as 'middle-man' taking a fee of, usually, one per cent for issuing the DPLC, with the funds coming direct from capital markets.

The DPLC issuing bank then collects the interest over the term of the loan, passing it back to the capital markets funders, with the term running up to thirty years.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.