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Residual Value Insurance
Residual value insurance (RVI) guarantees the value of income producing core assets at a future point in time.
Also known as 'Asset' or 'Equipment' Value Insurance, RVI is often used by owners of vehicles or equipment they lease out. With RVI, they can guarantee that the money they receive for their assets will not fall below a fixed price should they wish to dispose of the asset at the end of the lease.
To find out more about RVI, please take a look at two areas QBE has been involved in:
1. Core Asset Residual Value
If a corporate entity is looking to de-leverage its balance sheet, its core operating components are sold to a Lessor, sometimes Special Purpose Vehicle and leased back over a term. The Lessor's debt amortises to a final balloon payment.
QBE guarantees that the value of the assets will be sufficient to cover the value of the final balloon payment. In these types of transactions, we place greater emphasis on the ability of the entity to sustain the assets in the business environment in which it operates whilst also examining the secondary market liquidity for those assets.
2. Asset Finance Residual Value
An operator might want to acquire the use of an asset using cost-efficient off balance sheet financing.
Invariably, the asset is acquired by a special purpose vehicle company, capitalised by a combination of debt, equity and leased to the asset operator. The debt amortises to a balloon payment at lease maturity that is then paid off with the proceeds of the sale or refinance. The residual value policy guarantees that the proceeds of the sale or refinancing covers the balloon lease payment.
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