To learn more about how a True Loan™ can benefit you or your corporation, please contact our office today, or you can click here to request a quote online.
Generally, shareholders wishing to access the liquidity of their publicly traded securities traditionally have two options: Bank Loans or Broker/Dealer Loans. If the borrowers’ sole collateral is their securities, than the only option is a Margin Loan. Margin Loans require full recourse, margin maintenance, subject shareholders to Fed calls, involve the creditworthiness of the individual, allow complete and total use of their shares by others and limit leveragability to 50% of asset value.
Access to liquidity is especially problematic for corporate executives because they are limited to selling shares in a manner that is highly constrained by the SEC. Furthermore, where sales occur, so does a tax consequence. These two variables often make it nearly impossible to enjoy any near-term benefits from one’s pay-package. Publicly-traded entities are similarly limited in their financing options. The few options that have previously been available to a public company are undesirable, and may ultimately lead it to a downward spiral or demise.
In light of the trade-offs and downside to these loans, it is understandable that a majority of these individual shareholders (executive or retail) and publicly traded companies have been looking for other “outside the box” financing. Many of them have set their sights on what has come to be known as the “Stock Lending Industry.”
The Stock Lending Industry is a segment of the FSI (Financial Services Industry) that provides shareholders (individual or corporate) loans against stock. Clients are drawn to the flexibility of stock loans. These financings can provide an individual with LTV’s greater than 50%, require no maintenance, enforce no “Fed Calls” and do not rely on one’s creditworthiness. The most captivating factor of this service is that these loans are Non-Recourse: borrowers can walk away from their obligations without any personal recourse or liability.
Stock Loan transactions also provide corporations with safer financing options. When their stock is pledged as a loan it isn’t subject to any major sale options during the term and does not require any maintenance. As is the case for individuals, a non-recourse stock loan for a corporation is not dependent on its Rating and there is no recourse back to the company.
In theory, a stock loan would probably be the best and safest option for a client seeking financing, a protective hedge, or simply some liquidity. However, it is not that simple. The caveat with these transactions is that the borrowers must transfer and/or relinquish the ownership and title of their assets. Although the borrowers retain contractual ownership of their stock, the actual dominion over such securities will rest with the lender for the duration of the loan term.
This aspect of the transaction not only becomes a sticking point for many non-affiliate free-trading shareholders, it also raises serious legal and comfort-level concerns for affiliates and their counsel. While the aforementioned is primarily responsible for the lack of executable business, hundreds of millions of dollars in loans are consummated each year with thousands of other prospective borrowers continuously entering the market in search of non-recourse stock loans as a viable option to their financing needs.
Among the restricted shareholders seeking financing from private lending groups, less than one percent on average will actually complete a transaction in the traditional fashion (where ownership is transferred). For a market valued in 2004 at approximately $1.3 trillion dollars and growing, (not including shares retained by free-trading shareholders) such a number would appear ridiculous; especially since thousands of shareholders insist on seeking this service.
There is an irrefutable and overwhelming need for a better way to facilitate stock loan transactions. Thus emerges the True Loan™ program.
The True Loan Program (True LoanT) affords a borrower of any type, with stock in any form, the ability to pledge securities as collateral in a bona fide loan transaction. Unlike traditional stock loans, where the borrower’s shares are transferred to the lender, allowing lenders the ability to trade, short, sell, pledge, hypothecate, margin, etc. the borrower’s collateral, the True Loan forces a shareholder to keep stock in their own name within their own account. This is particularly important where it concerns Affiliates due to how their loans must be structured pursuant to SEC Rule 144. The True LoanT’s lending method ensures Affiliates that there is no transfer of ownership, which means no Form 4 Filings (always consult with counsel). This also means there is never a need to engage in the act of illicitly lifting restrictive legends.
Ultimately, the True LoanT offers a tremendous amount of additional benefits that both protect the shareholder while providing them the flexibility and tools to virtually customize their transactions.
To learn more about how a True Loan™ can benefit you or your corporation, please contact our office today, or you can click here to request a quote online.
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