Does it?
I’m coming to realize very quickly that in this world there are dreamers and there are doers. There are those who take life at face value vs. those who face life head on. Or more importantly, those that know it [life] only gets better with the more time and attention you pay to it. Speaking of paying… how does the saying go? Oh yeah, “you get what you pay for”. So if you want to pay less, don’t expect to receive the most. Pretty simply concept eh?
This certainly comes to mind when I reflect on one of the key factors of the True Loan Program (TLP) stock loan… the cost.
I know that yesterday’s non-recourse stock loan afforded a shareholder the ability to finance their publicly traded securities with limited cost; unless of course the “agent/finder” didn’t find a way to gouge the client for upwards of a 10% finder’s fee. It’s true. I can admit it. Yesterday’s stock loan created a breeding ground for the “Super Terms”. You know… the highest LTV’s and lowest interest rates possible. Why not? The borrower received loans where there was absolutely no personal liability in the event of a default. They could access the liquidity of stock that wasn’t even eligible for margin loans. A shareholder could pledge OTCBB and Pink Sheet shares. In some instances, they could receive loans as high as 90% LTV. And, if they were really discreet about it, one could even illicitly lift restrictive legends on their restricted shares (particularly affiliates), convincing themselves that the securities were now “free trading” and eligible for a free delivery stock loan at a rate of 1% of the Issued and Outstanding.
Wait a minute. Is it me, or does all of this seem like some major benefits that should come with some major costs? Oh… I forgot you get what you pay for.
Let’s face it. When money is given away to us on a silver platter, we tend to lose all sensibility. But think about it. Yesterday’s stock loan required a borrower to transfer the ownership of their shares to the lender. Did you hear me? Transfer their shares to the lender; voting rights and all. And we’re not even speaking of restricted stock or shares that remain certificated — only accessible or convertible into free trading stock upon a default. No, we’re talking about shares in electronic form. We are talking about securities that are in “street name.” Freely Tradable Stock! Oh Yes. Someone is paying and they’re paying big. But who is it?
The lender is in essence paying. That’s right; at least in the beginning. The lender is paying the borrower by providing all of those illusionary benefits because all that is cared about is one thing: taking free delivery of stock under the guise of a stock loan. Wouldn’t you? I mean, wouldn’t you give the best LTV’s and the lowest interest rates if it meant that you can get your hands on a bunch free trading stock at discounts steeper than that of a block purchase transaction? Stock that you now have the ability to trade, short, sell, hedge, loan, pledge, hypothecate, margin, etc. Of course you would. The LTV only matters in a very competitive situation or where you have a slim profit margin for whatever the reason. And interest… ha! What’s interest? With yesterday’s stock loan, for most lenders (not all, but the majority), it is just a formality. You know; something that borrowers are simply used to seeing. It is a negotiable item that allows a borrower to feel as if they made the best deal for themselves. Hysterical!
No, actually sad; especially when the borrower’s stock mysteriously declines in price as soon as their shares are transferred to the lender. Or when an automatic default occurs and no one can explain what happened, but hey, the lender has enough shares to force the borrower into a default. Or, at the end of the loan term, the borrower seeks to repay their loan and the lender doesn’t have the shares. Or worse… the lender goes out of business during the term of the loan or simply runs off with the borrower’s shares. I bet those high LTV’s and low interest rates just really look soooo great now!
Let me ask you this. If I provided you with a True Loan stock loan and REQUIRED that you must take the stock out of street name and secure your shares in your own name (this meaning that not even your Broker Dealer can use the securities) would that catch your attention? What if I INSISTED that your stock had to remain in an account in your own name or I could not provide you with a True Loan… would that bother you? Let’s say you are an affiliate and do not want to file or need to use more than 1% of the issued and outstanding to satisfy your financial needs and I said, “No problem! With the True Loan, because the stock indeed remains in your name, the transaction is truly private; and as there is no transfer of ownership, there are no filing issues and you can use as much stock as the market will bear”. Would that suit you? Or what if I told you that I can do all of this while providing you with LTV’s as high as 80% or 90% (restricted and free trading shares, respectively), within a non-recourse type of format that is a “bona fide” transaction complying with every body of law; especially where it applies to affiliates. Would that make you smile?
And the only cost you have is a 5% interest rate!
Now if you’re in search of fool’s gold, the last line excited you most. But if you a sensible borrower, cut from the cloth of the “Prudent Man Theory”, that cost would worry you sick. Why? Because discerning folks understand that you get what you pay for. And with the True Loan, you get it all, and it is worth every dime.
It doesn’t take a genius to figure this out… does it?