In this case, we assisted an ultra-high-net-worth individual secure a non-recourse, single-stock loan on their holding of the UK-listed stock for additional personal liquidity.
The company was a foreign exchange and payments company providing services to business and financial institutions. The client was an insider in the company and was keen to utilise their concentrated position in the stock for leverage. Since the client was an insider, they did not want to lose ownership of the stock and insisted on retaining dividends and voting rights.
We arranged a non-recourse loan secured against their shareholding, priced at a fixed 4.00% interest per annum. The client was offered a three-year term.
Within a few weeks into the loan term, the stock's share price fell due to a sudden change in the company's management, forcing the share price to decline by circa 60%. This triggered an event of default and forced the client to make an immediate margin call. Due to the non-recourse nature of the loan provided, the client had opted to walk away from their obligations of the loan with no personal recourse. Economically placing the client in a far more favourable position to that of having to sell their stock after the share price had declined.
A non-recourse loan means when the loan defaults, the lender can only use the pledged collateral to satisfy the debt obligation. The borrower has no further obligation or risk of personal assets. In reverse, borrowers can also retain economically beneficial ownership of their shares, entitling them to all future market appreciation and dividends as well.
Single Stock Loans provide access to liquidity while retaining all beneficial economic ownership of the pledged collateral. The network of lenders we have work directly with long-term, concentrated shareholders to provide competitive non-recourse capital against their equity assets. Highlighting again why insiders often use such loans to provide them access to liquidity.
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