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Why would you offer more collateral? What’s in it for you?
by jncfhnb 2y ago
Why would you offer more collateral? What’s in it for you?
- sudosysgen 2y agoIf you think the market will move in your favour, offering collateral means you avoid selling at a price you think is suboptimal.
- triceratops 2y agoNot getting liquidated at a loss.
- rsynnott 2y agoSay you’ve borrowed money to buy a billion dollars worth of BigCorp, and BigCorp has some bad results. Oops, suddenly your share of BigCorp is worth 800m, and your lenders want more collateral. The next day BigCorp releases [whatever amazing thing], and its stock doubles. You should probably have provided the collateral.
- jncfhnb 2y agoAre these things full recourse? Because while a doubling sounds quite nice, you would need to earn 25% from the current state of 800M to break even on that additional collateral of 200M. Sounds strictly worse than just liquidating the original loan to achieve net zero and then doing a different loan with your 200M of extra assets. If you can liquidate 800M to rid yourself of a 1B loan then it seems fairly obvious to do it?
- temp2022account 2y agoYou're liquidating the 800M and still owe your broker 200M, it's risk avoidance not a church full of forgiveness.
- jncfhnb 2y agoNon recourse loans are a thing, including the majority of mortgages.