why Cash Collateral Account

talking about the credit enhancement of bond issuance, there is a type of it named “Cash Collateral Account”. It means the cash is reserved in a specified account as collateral.

why question is that, if the issuer has the cash to be reserved for enhancement, why they need borrow the money? anyone has a real example for this kind of collateral account.


My company (SME size) need 35 % cash deposit coverage to arrange revolving credit line. Maybe that’s answer on your question, it’s depending on Company’s ability to borrowing, credit risk appraisal, size of company, geo location etc.

Collateral cash deposit is an interest bearing as well.

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Your collateral is not 100% of the debt, it is about a fraction of it. If you have 5 million on cash you can rise 50 million. Having 45 million proceeds are good enough for me.

I see, thank you very much, mate!

The company i work at does this. They, as a collateral for short term loan, provide their cash accounts. Mostly, the lender is the bank.

Why is this an external credit enhancement and not under the category of “Asset or Collateral Backing”?

I don’t think there is such an category in credit enhancement, either internal (waterfall structure, over collateralization, yield-spread ) or external ( bank guaranteed, surety bond, letter of credit, cash collateral account).

I’m working in the bank as the teller. I did see an similar example of cash collateral account in retail banking.
If you keep pay the minimum payment of the revolving loan( credit card payment or personal line of credit at each statement period), you could keep borrowing from your revolving loan until you reach the credit limit.