Transitional Collateral Agreement 

Definition

A separate individual collateral agreement that is used for the temporary collateralization of one or more receivables.

You must plan for replacing the transitional collateral agreement by the final collateral agreement.

It must be noted that unlike the other relationship scenarios, Collateral Management does not provide any special functions to support the business of transitional collateral agreements. It is only possible to maintain transitional collateral agreements.

Use

You can use transitional collateral agreements in the following scenarios:

●     If the final collateral agreement is not created.

●     If the final collateral agreement is created but has not been set status Legally active.

●     The final collateral agreement as been created and set to status Legally active but cannot be used as it collateralizes other receivables. In such scenarios, the business partners can agree on a mutual understanding that the final collateral will be available after the repayment of other receivables.

 

Features of transitional collateral agreements:

Some characteristic features of transitional collateral agreements are:

 

●     You specify a collateral agreement (or its portion) as transitional while defining the collateral scope of the collateral agreement – receivable assignment.

Additionally, you must specify the identification of reference collateral agreement (for which the transitional collateral agreement is used), in the Details section on the Portions tab page.

 

●     A transitional collateral agreement can also directly collateralize other receivables. In this scenario, separate portions of the transitional collateral agreement must be created. For example, you must create portions that can be used to back-up another collateral agreement and other portions to directly collateralize the receivable assigned to the transitional collateral agreement. In such a scenario, you must define the ranking ratio for each portion.

 

●     You can run the Collateral Validity Monitoring report to monitor the end-date for transitional collateral agreements.

In most scenarios, the end-date of transitional collateral agreements is not known.