From the desk of Roel Hoekstra July, 2006
Make no mistake; it is summer in Philadelphia again. As I sit here at my desk this morning I can barely see the
buildings of center city through the haze. Hazy, hot and humid are the three things we are very familiar with
around here in the summer.
In this newsletter I will cover three items;
• Why borrow against stock
• How to use restricted stock as collateral for a loan
• The 100th anniversary of the Newport to Bermuda Race (results)
Stock Lending – Why borrow against stock
I am asked all the time by people who are unfamiliar with stock lending “why would someone borrow against
stock”. This really is a great question and since I am focused on a day to day basis with closing deals it always
startles me a little when someone does not fully understand the benefits of stock lending.
Protect the downside, keep the upside, and diversify
Sounds simple, right; well it is. With our 90% loan to value (LTV) program, you get cash in hand today, thereby
protecting the downside. You can not loose more 10%. And you get the upside stock appreciation. If the asset
increases you keep the gain in excess of the loan interest charge.
Since the loan is a non-recourse loan without any margin calls, you have protected your position during the
term of the loan but still gain from future capital appreciation.
Plus diversify. That of course depends on where you invest the loan proceeds but one strategy many people
follow is to put the proceeds into real estate or other assets. I am sure your financial planner would enjoy
helping you to find a suitable investment for your new found cash!
Borrow against an appreciating asset
People routinely borrow against assets from houses to cars to horses to diamond rings. I was always taught to
borrow against appreciating assets and sell depreciating assets. Of course, cars are a depreciating asset but
we all seem to borrow against cars too.
Stocks are no different. If you think the stock is going to go up and you don’t want to sell, then borrowing may
be a useful strategy for raising capital. This allows you to use the inherent value of your stocks without having
to worry about short term price fluctuations and while retaining the long term capital gains. Like most secured
loans, the interest rates are generally lower than un-secured loans.
Stock Lending – Borrow against restricted stocks
So you own stock restricted by SEC rule 144? There are many reasons for this, from being an early angle
investor to being an insider or control person. What it means is that you are limited in how much you can sell
during any quarter (or restricted from selling at all).
Of course the investment may look great on paper but if you can’t turn it into cold, hard cash then its utility is
quite limited. Using restricted stock as collateral is always difficult. Investment banks and regular banks won’t
touch it as its value as collateral is just as limited for them as it is for you in case of default.
I am pleased to announce that I have a new fund that will accept restricted shares as collateral. Terms are very
competitive given the illiquid nature of the collateral so if you have restricted stock and want a price quote, just
let me know.
Some important benefits of our restricted stock loan program:
• Non-recourse loan with no margin calls available (depending on stock)
• 30% to 60% loan to value (depending on the stock)
• Loan does not require change in ownership or re-registration
• Interest rates from Prime to Prime +2
• Up-front points from 5 to 10 points (depending on the stock)
• Loan terms and features to meet your needs
• Fast closings
Newport to Bermuda Race – the results
Of course, even the most hardened and driven business man needs a break from the rigors of work, and in my
case I turn to sailing. Not the swizzle drink, sun drenched, bikini clad sailing but hard core ocean racing (what is
the matter with me?)
This past June was the 100th anniversary of the premiere east coast ocean race – The Newport to Bermuda
race. The event attracted 260 entrants and let me just summarize by saying it was an amazing event. For the
most part the weather was great and the conditions favored the smaller/older boats (like ours). I’m sure this
really annoyed the owners who spent millions on their 60 foot racing machines!
So after 5 days of racing covering 650 miles, crossing the Gulf Stream and sharing space with 8 other people
on a little 43 foot sailboat we ended up 14th in our division and 23rd overall (out of 189 boats in our class).
The start in Newport, RI
Follow-up and contact information
I would be delighted to talk with you about your stock loan needs or sailboat racing any time. Give me a call at
215.858.8659 or send an email to Roel@globalstocklending.com
Regards,
Roel Hoekstra
Managing Partner
www.globalstocklending.com
Philadelphia, PA
215.858.8659 phone
215.827.5414 fax
