Frontclear Counter Guarantee II

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Frontier Clearing Corporation B.V. (FCC) is a fund under Dutch law based in Amsterdam. The fund was founded in December 2014 as a structured fund and began operations in the first half of 2015. Investors FMO, Proparco, EBRD, DFID (FSDA), TCX and BMZ have so far committed capital totaling around EUR 179 million. FCC offers guarantees for interest and currency hedging, for trade financing (including letters of credit) and for securities repurchase agreements in developing and emerging countries, in each case against the assignment of collateral, mainly in local currency. Typically, these are secured interbank transactions between a local and an international bank, in which the local bank provides the international bank with local currency collateral and FCC covers the international bank's risk of loss after the collateral has been sold with a USD guarantee. In addition to the one-to-one guarantee structures with financial institutions, FCC also offers guarantees for country-specific CCPs (Central Counter Party; central clearing houses). A so-called Umbrella Guarantee Facility (UGF) is also to be offered. This involves issuing a first-loss guarantee in a predefined amount for a portfolio of participating institutions. In all product variants, FCC holds a credit risk of the respective counterparty in a predefined amount. FCC's guarantee holders are interested in the equity-relieving effect of the guarantee under Basel III. For this, however, FCC requires an external rating of at least A-. An external rating of the required quality can only be achieved with a sufficiently large and diversified portfolio, as well as proof of capital resources, experience and market presence. As long as FCC does not have an (adequate) external rating, KfW lends FCC its creditworthiness via the counter-guarantee, thereby enabling the business to be set up and the vehicle to be established. KfW's counter-guarantee for FCC's default on its payment obligations totalling USD 100 million can only be drawn on first demand in the event of FCC's complete insolvency (i.e. after all available funds have been used up).