Principal and interest guaranteed security

"PIGS"
Principal and Interest Guaranteed Security

A Principal and Interest Guaranteed Security ("PIGS") is similar to that of a Guaranteed Investment Contract ("GIC") which is a contract that guarantees repayment of principal and a fixed or floating interest rate for a predetermined period of time. Guaranteed investment contracts are typically issued by life insurance companies and marketed to institutions qualified for favorable tax status under the Internal Revenue Code (for example, 401(k) plans). A GIC is used primarily as a vehicle that yields a higher return than a savings account or U.S. Treasury securities. GICs are sometimes referred to as funding agreements, although this term is often reserved for contracts sold to non-qualified institutions.

Example: Funds obtained through a municipal bond issuance will generally take time to be drawn down. Depositing the bond proceeds in a GIC gives the bond issuer the liquidity of having the funds available while earning a higher rate of return than it would earn in a money market account. GICs are considered safe vehicles since most insurance companies offering them are rated in the AA to AAA range.

PIGS or a PIG Contract is an investment vehicle issued solely by a corporation named and are non registered securities issued to institutions or to the very wealthy, also called Accredited Investors.

PIGS were invented for the sole purpose of raising capital for select companies that were in desperate need of Mezzanine funding. These companies range from small to medium sized companies not considered bankable by the larger institutions or conventional banks.

In many respects PIG contracts can be considered one of the safest vehicles next to government issued securities. The term PIG refers to the guarantee of principal and interest like a GIC or Government Issue. For example, a very high rated corporate bond like is backed by the performance of the Microsoft corporation and although probably will not have any future defaults, it is still one company. Like the saying goes “don’t have all of your eggs in one basket”. PIGS are backed by the performance of a number of private businesses in which it is invested. Therefore if one business has a problem it will not adversely affect the whole basket. Also, the companies that are in the basket include many different industries, are not affected by stock market conditions, fluctating interest rates, prepayment risks, and are balanced so that if one sector falls the other benefits and thus acts as its own hedge.

PIGS are not only safe because of the diversified range of businesses within the basket but because the fund also takes a direct involvement in each of the businesses in which they invest. Thru its subsidiary company Business Concepts (IBC) and other supporting affiliates, a complete synergy is formed. Best practices are implemented in each company from the training of the CEO down to the way the receptionist answers the phone. This type of synergy is essential in obtaining the fastest path to profitability since time, energy, and capital is not wasted on the learning curve.

Most businesses do not share their formulas with other competing organizations for fear of being made redundant. With this formula, profitability that was once wasted on common mistakes is realized as income and shared within the basket.

PIGS have even more security in the form of underlying performance bonds (issued by an insurance company) on each company, based on the credit of the whole basket. Premiums are paid based on a minimal percentage of the pool of capital. Depositors don’t mind paying this nominal premium since PIGS pay a much higher rate of return than can be found on any other type of investment that offers such safety. These premiums are built into the rate of return so most investors will not even know they are paying unless they read the fine print.

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