Hedge Lending:
Using Stock Portfolio Money
to Invest in Real Estate
Part 2

Flexible Exits

The exit strategy for a HedgeLoan is very flexible and is in many ways its most attractive feature. Borrowers, through their quarterly reports, always know where they stand and when the maturity date approaches, allowing them plenty of time to choose from three different options to close out their loan obligation.

At maturity, they can: Ask us to sell the portfolio, pay off the principal and accrued interest and remit the remaining in stock or cash back to the stock owner/borrower. This solution is chosen typically by those who have portfolios that have risen in value over the life of their loan term.

Pay off the principal and interest in cash, and have the shares freed from our custody and repatriated in full to the stock owner/borrower.

Walk away and owe nothing, with no recourse to the lender besides the shares, the famed "non-recourse" provision of hedge lending. This is the option typically used when portfolio value has fallen dramatically would be insufficient to cover principle and interest if the portfolio were liquidated.

The borrower can simply "walk away", but unlike other loan default situations, with a HedgeLoan there is no negative report or effect on the client's credit record, and the lender can make no demands on the assets of the borrower other than contents of the devalued stock portfolio -- even if (as in the Enron case) the portfolio has become essentially worthless.

The client keeps his 90% of value from the loan"s inception, and the matter is closed.

Beyond Hedge Loans

Hedge loans have occasionally been mated with other financial products for specific purposes. HedgeLender Corporation, for example, through its partnership with the well-regarded insurance concepts firm Emerging Money Corporation, supports EM's Stock to Cash, whereby HedgeLoan proceeds are placed in carefully constructed programs of annuities and/or insurance contracts, producing income and/or tax and/or planning advantages to the client..

These Stock to Cash add-ons are often chosen by individuals with very specific estate planning and/or income needs, and are marketed by licensed insurance and financial professionals only.

Conclusion

In summary, what can we say about hedge lending as a liquidity tool today?

Hedge lending is a powerful and flexible liquidity option for those who want to, in essence "stay in and out of the market" at the same time.

It essentially places a bottom on loss (borrower keeps their 90% of today's value in cash regardless) while keeping their portfolio working for them for up to twenty years.

It defers the need to worry about repayment until a future (maturity) date when repayment may be less of a problem.

It allows three exit strategies including a "non-recourse" fallback strategy that a client can always use even in the worst of cases. And in the case of HedgeLoan, it offers additional benefits for estate and tax planners.

In short, it's a tool both for the modern financial professional and average investor, but unlike many other "boutique" products formerly reserved for the highest net-worth tier, it is a tool that's now available "to the rest of us."

And for this should all be grateful.

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In part by Joah Santos
joao@redanco.com