Bank Capital Solutions
Stronghold has developed proprietary private sector solutions to strengthen bank balance sheets & capital positions.
Programs can provide two solutions:
Raise non-dilutive capital for banks at risk and
Enable the true sale ( full risk transfer) of distressed assets held by such banks including non-performing loans.
Both solutions strengthen bank balance sheets and Tier-1 capital ratios. A bank can use the additional balance sheet capacity to write more business or make acquisitions.
21st Century Private Sector "Brady Bond"
Private-sector solution: Programs fully secure the prepayment of principal by means similar to those applied in collateralized insurance agreements - real assets in place to meet the contractual obligations of the instruments at the contracted time.
Private sector solution: The solution requires no government or tax payer guarantees.
Augmenting Policy Responses: The solution provides Ministries of Finance, Central Banks, and banks themselves a clear means to strengthen bank balance sheets and capital positions thereby augmenting other policy responses.
Programs
Non dilutive capital raise
Institutional shareholders purchase a bond. Following the purchase the issuer establishes:
Collateralized (investment) Insurance Reserves to meet all contractual obligations of the bond and
Purchases preferred shares from the bank.
The bond — a senior fully secured debt instrument of an insurance company — enables the institutional shareholders to indirectly participate in a recapitalization of the bank without making a full-risk equity investment in the bank and without diluting their equity position in the bank.
"True sale" of distressed assets or NPLs
The affected bank purchases a Stronghold-designed bond. Following the sale of the bond, the issuer (i) establishes reserves (as above) and (ii) purchases non-performing loans from the bank.
The solution immediately:
Strengthens the bank's balance sheet,
Frees up lending, and
Mitigates current constraints on Central Banks.
Like Brady Bonds, the approach transfers the risk of these instruments off the balance sheets of the current creditors.
From a higher level perspective, the solution distributes current NPL risk over time, as an insurance program.
Run-off or recovery of the NPLs in custody of the program can deliver enhanced yield to the bank purchasers of the instruments.
The Program can hire the bank to do the run-off.
Summary
Each of the solutions described in this section have applications insurance, pensions funds, private equity firms, private credit firms, and other commercial enterprises holding distressed assets or non-performing loans.