Using HedgeLoan to Your Advantage in a Credit-Dry Financial Environment Having been in the stock-secured lending industry for more than a decade, I've ridden our stock HedgeLoan product through most every kind of financial circumstance. In the up-trending days before 9/11, our loan product was just another of many liquidity options investors were willing to try. Borrowers were less interested in the overall advantages of HedgeLoan financing and more interested in staying in the market without losing their interest in their stocks. We provided that. After 9/11, when fear and uncertainty prevailed, investors drew back and held onto their portfolios, preferring to do nothing to doing anything. We at HedgeLender had to break through the shell of indecision to bring information on our stock loan choices to the market. When things picked up again with less exhuberance than pre-9/11 but more enthusiasm for sectoral stocks, we were there to customize and tailor our loans to each borrower's needs and portfolios, and our steady growth continued. So when in early October 2008 the effects of long, flawed policy of lending to individuals who had shaky credit or weak means to repay their loans finally came to roost, HedgeLender watched carefully to determine how and where, if at all, the meltdown would affect its business. That question was answered rather quickly as the phone began ringing off the hook almost as soon as the headlines appeared. Home equity lines were not being renewed. Loans of all types were disappearing. The already reeling real estate market was being pummeled further as mortgages became harder than ever to obtain. Even new car buyers faced a close-down of lending options. They all had one thing in common: They were tied to the credit markets. They were tied to credit ratings. They were tied to rebuilding of confidence amongst banks. All things that our HedgeLoan has absolutely nothing to do with. Of all the types of loans one could market, our HedgeLoan suddenly became the best option of all, particularly for those with real estate requirements. How? Why? We always used the generic version of the definition of “hedge” here at HedgeLender. We’re not a hedge fund. But we find ways - using private options contracts, careful holding, cash, and fund-based strategies - to reduce our risk of loss overall to the point that we can analyze the history of a stock and make a good guess as to make any loss in value palatable. That “guess” - though an educated one, allows us to turn the variable stock asset into something that is for our purposes virtually “fixed” - at least enough to enter into a HedgeLoan contract with. Those with hands-on control of this process are established professionals with long track records of outstanding performance. The bets are hedged the collateral stock portfolio. You get the fixed stock loan as your anchor out of this process; the lender if he plays his cards right (as in the case of HedgeLender loans) will operate profitably by ensuring his downside loss potential is always limited. That meant that of all the types of loans on the market, none was better positioned that HedgeLoan to be unaffected by the meltdown. HedgeLoan was benefiting enormously because it was designed to operate well in every type of market condition. A HedgeLoan stock loan in an up market gives the client the confidence of having up to 85% (even 90% in some cases) of his portfolio's value in cash today, without having to issue a sell order to his/broker. He could take advantage of the nice value to get maximum cash now. He could repay the loan with quarterly or accrued interest repayment. And at loan maturity date, he could ask the lender to sell enough stocks to repay the loan if he so chose. Should it fall, it was a nonrecourse loan, so he could forfeit the stocks (even if they did an Enron or a Fannie Mae and dropped dramatically in value) and that would be completely fulfillment of his loan obligation. They could go after no other assets, even if the collateral he forfeited was worth only half of what it was at loan inception (or worse). And regardless, there was no reporting of the default to credit bureaus. But n a down market? Here we had something new: Not just a downturn in the market, but a drop of historic proportions. Portfolios were dropping at astronomical rates. Media-driven investor panic was hurting the market further. The prospect of an anti-big-business, anti-Wall Street president was causing pessimism while the front-runner's call for higher taxes on high net-worth individuals -- those who had the largest bank deposits and were most likely to be employers -- was leading to a chill on new investment and hiring. Many other factors, including poorly regulated mortgage-backed securities trading and a do-no-evil policy towards the two largest mortgage guarantors Freddy Mac and Fannie Mae - meant the free-fall would continue for a while. One real estate investor contacted us with a huge dilemma. He had a shopping mall half finished and a second round of financing due for its completion. All was well until the banking crisis hit. His bank, with which he had a long-standing relationship, had decided to shut the door on any further financing unless the came up with $2M more of his own cash. He went through his options and finally went online. In time he landed at HedgeLender's website, where he found he could avail of an 85% LTV nonrecourse stock loan with no payments of any kind due until loan maturity and an early repayment window after the first year (with small penalty). There were no margin calls if the price/value of the stock collateral fell during the loan term, and he could avail of the full upside -- all of any growth or rise in the porfolio's value during the three years of the loan were his and his alone, as were dividends (credited against interest). This is a guy who had hated the idea of selling his stocks, stocks he had bought at $25 a share five years ago that were now worth $10 a share. He had a substantial amount of stock - more than enough to reach his goal of $2M in cash at 85% loan-to-value. He closed the loan in a week and his funding was resumed, a rare bright spot among his colleagues, many of whom faced termination of their projects at substantial risk of loss in a credit-less economy. How will our borrower fare down the road? Let's take a look. With prices of stocks so low now, this may be the best time of all to get a HedgeLoan. (Judging from the huge uptick in HedgeLender business sinc early October, this conclusion must have been reached by others). They: - Do not have to sell their stocks outright, retaining an interest as beneficial (contractual) owners of their shares, able to repatriate them upon repayment of the loan. - Are entering the loan when their stocks may be their lowest ever -- knowing that given their history and the inevitable cycles of the economy, prices are likely to rise again by the time the loan matures - Rather than sit on their stocks and get no use of them whatsoever until the economy recovers, they can tap them for cash now for their real estate projects - when they most need the cash - without having to completely sever their relationship to their stocks. - Should the stocks rise, they can either pay the loan of out-of-pocket and get all the shares back, or ask the lender to sell a percentage of them sufficient to pay off the loan, at which point all remaining stocks (or cash, if client prefers) will be repatriated to the borrower. - Should they default on the loan instead, there is nothing owed beyond the forfeiting of the stocks, and they keep the loan cash with no negative credit reporting. Meanwhile, the real estate project gets funded. - Some HedgeLoan borrowers will consult with their licensed tax advisors to apply strategies that are helpful in tax planning. Best of all, the investor's stocks are their qualifier for a stock HedgeLoan. No credit rating, relationship with banks, etc. are factored into the loan process. Your stocks are your passport to a nonrecourse stock-secured loan and the cash on your terms to do with as you wish. (Which is virtually any legal thing except for the repurchase of marginable securities.) Want more information on how HedgeLoan can benefit you? Visit www.hedgelender.com.