When to request an ATV letter
Authorization to Verify or ATV letters are used for every form of CAP funding’s Security except direct public (listed) stock. Start with the presumption that the client and/or their sponsor can issue the ATV letter once they are ready, then request that the take the action(s) outlined in the table below when they offer any qualifying form of Security.
For In3 and Affiliates, requesting evidence of Security (adequate capacity from a verifiable source) lowers everyone’s risk and makes sure the client can perform as required to launch our Due Diligence, then if all goes well, get under binding terms (usually via a negotiated investment agreement), then deliver CAP’s Security for their proposed project(s) as the final step before financial closing.
Once the client/sponsor has agreed to proceed with CAP funding’s security, the following table outlines the steps by Security type, where in each case the evidence of capacity is eventually an ATV letter or one of the approved alternative forms of verification.
Ask for evidence of Security as early as possible in the process once it is clear the client has proposed a project aligned with the basic 4 “S” screening – sector, stage, size and security.
Three categories of Security and the immediate next steps to launch underwriting
For Cash (1), below, or Direct Securities (3), this means asking for the ATV letter once the proposed Security is adequate to unlock the proposed CAP funding and draw schedule. This request will expedite pre-qualification. For bank Bank-involved Instruments, first request a “specimen” (unsigned draft) of the proposed instrument’s wording, then the corresponding bank letter, with the ATV letter the final pre-qualification deliverable.
| Form of CAP Security | Examples of Acceptable Security | Steps for Clients to Pre-Qualify for CAP funding |
| Cash Surety Deposit | Cash from the client’s holding (short-term Security Deposit gets 3x-4x in the form of a long-term equity JV Partnership), from a sponsor, bridge lender, etc. | Once comfortable with CAP funding’s basic terms and conditions, send Authorization to Verify (ATV) letter by email. If ATV is not available, consider an alternative method to verify capacity. |
| Bank-involved Instrument | Standby Letter of Credit (SbLC), Sovereign Guarantee (SG), Bank-endorsed (per bank “Aval”) Promissory Note (AvPN), Performance Guarantee or Payment Guarantee (PG), Bank Guarantee (outside the US only), or Blocked Funds, etc. | All such instruments start with In3’s review of the proposed “specimen” or sample verbiage and a bank letter of intent. For the SbLC, this is an RWA letter – ready, willing and able. Each type of instrument has a corresponding bank letter template (ask if unsure). Lastly, an ATV letter by Email. |
| Direct Securities | MTNs, Gold with SKR, Bond (first we wish to receive rating and sample of the bond’s wording), or Publicly-traded shares of stock (public equities) | All but public equities use the appropriate template for an ATV letter or an acceptable alternative, sent by Email to security@in3capital.net |
In brief, a bank’s RWA letter is just for SBLCs and Bank Guarantees, with similar (but not identical) bank letters for other non-cash forms of Security — Sovereign Guarantees use a bank confirmation letter (not RWA), for example.
Cash as security only requires an ATV letter, or one of the other acceptable forms of verifying capacity — direct Email with the banker, audited financials or legal attestation, per yesterday’s forum. If this is confusing, step back and begin with What is an ATV letter?
To avoid spinning wheel-spinning, if the client says they’re able to bring a $37.5M Cash Surety Deposit, for example, if they have no questions besides “What is our next step,” it would be best to focus on the ATV letter immediately. When that comes through, it significantly lowers everyone’s risk, as it immediately launches underwriting’s due diligence.
There may be other, preliminary steps for the client or sponsor to take (such as providing the complete package for In3 review) once our underwriting determines there is $37.5M capacity known to the involved banker. The ATV letter remains the best, most straightforward method of achieving this all-important step.
Other interim steps or actions that may arise, which can delay the ATV letter delivery:
- Verify to make sure the client/sponsor is on board with the proposed use of cash, which serves a similar purpose to Blocked Funds or a (senior) collateral lien, but is structurally quite different, a reflection of CAP funding’s unique approach – cash serves as a Security Deposit, or “surety” or (per the name, CAP) completion assurance! Since there is no loan (no interest charged), forming an equity JV partnership, this Cash is really just a good faith deposit to draw the arranged funding per automated monthly transfers.
- Sometimes the client has questions about terms & conditions. We do our best to address this if necessary, including an indicative term sheet, if required, inclusive of all fees. Some of the most important terms cannot be pinpointed until after proper Due Diligence, so do inform the client that each deal is largely case-by-case.
- Does the client understand that funding will be delivered through a series of consistent monthly draws? The number of draws is largely determined by the leverage used – here 30% is a bit more than 33% (3x), so I’d estimate that at least 18-24 months draw period would work. To draw faster, 33-35% (either a slightly large cash deposit or slightly less total funding) may be needed We will ask this after due diligence, along with the equity split.
- If the client is using a “sponsor” to bring the cash, then they may need to put an In3 EOI letter in that party’s court before asking for their ATV letter or one of the other verification methods.
If the client has questions about how the cash will be held and contractually arranged, answer their direct questions and consider offering an available background paper. Many clients do not have these questions at this early stage, ahead of this verification step (they are fine to discuss later, during contracting) so do not share more information than requested — no point offering an article proactively if they won’t read it carefully. Only share what they need to know due to questions where proper answers require a more fulsome, nuanced understanding.