What is Securities-Based Lending?

9th February 2021
Islay Robinson GROUP CEO

Islay Robinson

What is Securities-Based Lending?

Islay Robinson

What type of financing instruments are clients most interested in regarding securities-based lending?

Generally, Lombard loans are the cheapest and hence the most common financing instruments in the world. However, increasingly we see more of our clients using single-stock financing and also structured lending on the back of more complex collateral.

These are usually bespoke and involve financing on the back of more exotic collateral, which are usually illiquid and complex. 

Why is there a growing demand for single-stock loans?

I wouldn’t say it is a new product. It has been offered in many parts of the world for some time. But we do see increasing demand for it and are getting more enquiries. I believe our clients think there are greater reinvestment opportunities out there because of the increased volatility in the market. A good portion of our clients are entrepreneurs with most of their net worth tied up in their businesses. By extension, there is a greater need for single stock lending.

What size of financing are clients typically looking for?

This ranges from as little as $500,000 to cases above $50 million USD. We have a diversified base of clients who tend to look for more medium-term single stock loans for investment purposes.  

What are the typical purposes?

There are three main purposes:

  • Firstly, for reinvestment, to leverage and enhance returns from existing assets.
  • Secondly, for diversification as single stock loans can be used to buy assets that are less correlated to a client’s source of wealth.
  • Lastly, they can be used for liquidity purposes. 

The purpose depends a lot on a client’s specific requirements and risk/return objectives. We see a variation in the use of the loans; from investing in property to creating a more diversified financial asset portfolio. 

What are the most important criteria for our clients when it comes to choosing financing instruments?

The cost and the loan-to-value (LTV) ratio are the two most important criteria when it comes to choosing a funder for single-stock financing. Cost and LTVs can vary significantly from Lender to Lender, especially when you are dealing with very complex and niche collateral.

How many Lenders do you work with?

Up to 10 to 15 Lenders. Ultimately, the choice of the Lender comes down to the cost, LTVs and the flexibility of the financing terms. 

Looking forward, how will structured lending evolve in the world?

There is a growing trend for these products. Hence, a greater variety of structured lending will definitely be welcomed as we will then be able to tailor financing solutions to meet the different needs of different clients.

The landscape is definitely evolving to one where clients are becoming more cognizant of the opportunities they can get from structured lending. This will definitely result in greater demand for such products in the near future.

Case study 

  • Client: Irish UBO who is CEO of an African oil and gas trading company
  • Loan Amount: £15,000,000 (60% LTV)
  • Share Value: £25,000,000
  • Shares type & location: UK listed shares, illiquid, £112m market cap, erratic trading volume, shares in certified form
  • Interest Rate: 5.95% pa
  • Other interesting terms: Convertible loan, UBO retained equitable rights of the shares throughout the loan 

Case study

  • Client: US UBO who acquired shares in takeover held in certified shares
  • Loan Amount: $6,500,000 (55% LTV)
  • Share Value: $11,800,000
  • Shares type & location: UK listed shares, illiquid, £700m market cap, erratic trading volume, shares in certified form
  • Interest Rate: 2.55% pa
  • Other interesting terms:  Lender assisted in the dematerialisation of the shares, added trading activity to the terms of the loan to enable the Lender to assist with improving the liquidity of the stock, UBO retained equitable rights of the shares throughout the loan

Get in touch

Enness works with trusted partners that source securities-backed loans on the very best terms for our clients.  

As with Enness, our partners find and source the appropriate lender through extensive connections. 

Creative solutions are provided for each client and tailored to their individual circumstances which allow borrowers to make the most of their wealth when financing a property.