Financial Guarantee Essentials: What is an RWA Letter?

A “Ready, Willing & Able” (RWA) letter verifies that a bank or financial institution is prepared and will be able to proceed on behalf of a client for a specified financial transaction. For In3’s funding purposes, the transaction is usually a completion guarantee brought forward by the project developer or a sponsor from a bank for one or more identified projects to be financed through our partners.

An RWA letter will state (per our recommended templates — here is the template for a BG/SbLC) that the sending bank will follow through for their customer per establish banking rules and send the pre-approved guarantee instrument when the time comes. When is that time likely to be? Assuming all goes well (statements made to In3 are accurate, per due diligence), the RWA letter expresses the intention by the bank of sending the guarantee instrument bank-to-bank after completion of our due diligence, once all contracts have been negotiated, agreed, signed and countersigned. The signed instrument moves (hardcopy sent via courier) as the last step to reach financial closing.

It is important that bankers understand that we are not asking for their commitment to do anything ahead of these future events. Sending the “operative” instrument is the last step to secure funding, but we use an RWA letter earlier, well ahead of closing, to show the bank’s intent, ability and willingness (true readiness comes later) to proceed with the undertaking when all qualifying terms & conditions for the funding are met. The RWA letter anticipates this action on behalf of the sending bank and is contingent upon the parties and counterparties agreeing on the funding. If that does not occur (and financial closing is not reached), the bank would not be asked to send the instrument at all, with their letter simply indicating they were willing and able to do so. See Myth #4 at Communicating with Bankers.

Why the RWA letter is so important to securing CAP funding

Together we pre-negotiate and approve the funding for specific projects. Without an RWA Letter, we would need to otherwise determine that the involved bank will reliably send the instrument if and when the time comes. This is the precise purpose of the RWA letter.

Further, we typically do not charge up-front fees, but do invest substantial time and effort (and money, sometimes involving outside professional services to visit the proposed sit, arrange contracts and other facets of due diligence), so the RWA letter makes sure we are not wasting anyone’s time.

The RWA letter is on behalf of their client (usually the project developer or sponsor). If they are reluctant, and you’ve explained all this to the sending bank, but they still hesitate, keep digging for root cause. Depending on their objection(s), there are likely solutions available.

What reassurance is there that the project will be funded once the developer is under contract and has reached closing?

There are several ways of satisfying this understandable need for mutual KYC (know your customer). Normally, just prior to sending the guarantee instrument, there is a mutual safety check via a SWIFT “advisory” (text only) message called MT799 or MT199 that the issuing bank provides, which signals that the instrument (via MT760) will follow. Our partner’s funding bank responds to this MT799/199 SWIFT committing to having adequate “clear and clean” capital capacity to fully fund the project(s) per the commercial agreements. More on these mutual protections here.

Thus, an RWA letter is stating the bank’s intention and capability to do their part with providing the referenced guarantee instrument (issuing a Bank Guarantee / Standby Letter of Credit, endorsing via bank “Aval” a commercial Promissory Note, or confirming a Sovereign Guarantee) when asked to do so. But again, the bank’s part in the guarantee instrument is contingent upon the parties to first agree that the funding has been arranged per mutually-acceptable terms and conditions. There is nothing directly binding, irrevocable or “material” at the time of the RWA letter issuance. No money should change hands at that point.

Further, our RWA letter templates provide sample language, and modifications in the exact wording are allowed so long as it still upholds the overall intent to promise they will later do their part to assure delivery of the enabling financial guarantee. First there must be an agreement with the bank on what that means — the exact verbiage of the instrument gets approved first.

What if the sending bank objects to the RWA letter?

If they are less comfortable with the RWA letter wording, suggest they modify it (with the above proviso about upholding the original intent) so that it would be acceptable to them, then share that revised draft with us to see if the alternative wording will work.

An acceptable alternative to the RWA letter would be direct Email and/or phone contact with the sending bank officer(s) involved. Start with an Email from or referencing the banker(s) that were asked to issue the instrument and RWA letter so we can confirm their participation that way.

Sometimes an RWA letter is sent together with a SWIFT MT-799 (considered “pre-advice,” meaning that it is a text message only — does not constitute a guarantee), though not required. Without optional MT-799, a signed RWA Letter can be sent via Email or as requested by the receiving bank.

The main purpose of the RWA Letter is for the project’s Developer or Sponsor to signal their intent to provide the required financial guarantee. BG/SBLCs and SGs use SWIFT MT760, a widely-used message type for such instruments, so that we may respond with the name and location of the receiving bank and proceed through the steps of pre-qualifying, qualifying/vetting, reach terms for funding, drawdown of funding and launching the completed project(s).

The alternative to these instruments is called a Commercial Promissory Note, where a bank adds an “aval” or stamp, which we call an Avalized Promissory Note (APN).

This use of an RWA Letter launches due diligence and also forms an integral part of In3’s capital partner due diligence. For all three instrument type RWA letters, go here.