What is Transferable Underwriting Facility (TRUF)
Transferable underwriting facility (TRUF) is a type of underwriting facility that deals in Euro notes. Transferable underwriting facilities allow project managers to transfer their Euro note underwriting commitments to other parties. The receiving party then assumes all responsibility for the underwriting from that point on.
BREAKING DOWN Transferable Underwriting Facility (TRUF)
In a transferable underwriting facility, the transfer of underwriting commitment must be approved by all parties involved. Both the responsibility and the management of the underwriting are then transferred to the new party. This arrangement allows the original underwriters to satisfy their commitment by moving it to another party that is capable of completing the transaction.
A transferable underwriting facility is a type of note-issuance facility. A note issuance facility allows a borrower to issue short-term notes or certificates of deposit rather than borrow directly from banks under a syndicated loan facility. A note-issuance facility is basically a guarantee. If a borrower's issue is not fully sold, a group of banks purchases the unsold notes. No regulations cover note-issuance facilities.
A note-issuance facility is entirely separate from the issue itself. A note-issuance facility can be freely traded and sold in the secondary markets without recourse to the underwriter. Therefore, a borrower benefits from buying a note-issuance facility if it needs to access alternative markets to place the issue or if the issue is so well-accepted by the markets that an additional source of short-term funds is actually advantageous.
Issues Surrounding Transferable Underwriting Facilities
A TRUF allows for the transfer of commitments among underwriting banks in order to address the precise needs of a borrower. These linkage facilities or loan commitments are all recorded in the off-balance sheet portion of a bank's annual report. They are referred to as international syndicated loans and note-issuance facilities. Most international banks have witnessed substantial growth in this kind of activity, as a result of their attempts to securitize their own loans. The greatest risk to the underwriter is getting stuck with the notes. Of course, this is something banks would not want. As such, the fees on all of these kinds of facilities are low in order to spur confidence and investor appeal. Another significant risk is that these linkage facilities have not been in existence very long. If an underwriter were presented with a large amount of unplaced notes all at one time, it may impose on the market a demand the underwriter or underwriters cannot live up to.