An assurer is an entity which, for a fee, assures another party that something will or will not occur.
In the case of revenue royalties, an issuer-independent Assurer would assure a royalty investor that they would not lose money by investing in the royalty offered by a specific royalty issuer. Stated positively, the assurance would backstop the investor’s basic assumption and issuer’s expectation that the issuer would make at least sufficient royalty payments to equal the cost of the royalty. Unless otherwise agreed, the period covered by this assurance would be the maturity of the royalty agreement.
Therefore, assuming the Assurer honors its commitment in the event the royalty issuer fails to make the necessary capital recapture minimum payments, the investor’s principal investment would be risk-free, together with anticipated contractual upside.
The assurer’s risk will be reduced by every royalty payment made by the issuer. In the royalties we structure for issuers, the period during which investors receive investment matching payments is seldom more than the first 6 years of a 10- or 20-year royalty payment period. In some cases, the investment matching period is even shorter.
Assurers should be paid a fee by the royalty issuer for making the terms of the royalty more attractive to the investor and therefore allowing the issuer to negotiate better terms. Though fully negotiable, let’s assume that an issuer pays the Assurer a fee of 5% of the funds raised and that this amount will be paid at the closing of the transaction.
Assurers may also share in the royalty payments paid to the investor, after the investor has received a full return of the principal amount invested. The Assurer’s fee could be either a flat percentage of the payments received after the investor reaches break-even, say 20% or possibly a greater percentage of the cumulative amount of payments in excess of an agreed multiple of the amount originally invested.
We wish to know the identity of those who might be interested in becoming assurers of royalty issuing companies. We then would have the ability to facilitate introductions leading to assured royalty offerings, which we believe would be of interest to conservative investors due to the mitigation of their risk. Of course, investors will necessarily be interested in the assurer’s financial ability to meet the commitment to create for them a capital risk-free investment. At some point it may become possible that financial institutions will offer minimum royalty payment assurance contracts.
It is also possible that affiliates of British Far East Holdings Ltd, might provide or participate in the minimum royalty payment assurance process, because we benefit from the issuer’s use of our patented approaches and advisory services, when using royalties in the financing of companies.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100
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