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  1. #1
    Join Date
    Apr 2013
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    2

    Default Structuring a Derivative Product for Loan Portfolios

    My question involves collection proceedings in the State of: New York


    I am trying to structure a derivative product that will swap an inferior collateral backing a loan with a new superior collateral without having to transfer or sell the actual loan. A collateral is attached to a loan by security interest under UCC code and to my knowledge security interest is invalid without the actual debt/loan. Hence it cannot be traded or sold without touching the loan.

    Can anyone suggest a structure by which we can achieve a collateral swap of existing loans? We do not want to do a guaranty structure e.g. insurance where claims arise only when a default occurs.

  2. #2
    Join Date
    Mar 2013
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    18,340

    Default Re: Structuring a Derivative Product for Loan Portfolios

    I have absolutely no expertise on your question but common sense and a knowledge of human nature tells me that a change in collateral isn't gonna happen if you've already given the borrower the money based on collateral that you accepted at the getgo.

    The only leverage you might have some day is if he wants to borrow more money for something else in the future and that's when you can insist on restructuring the first loan with better collateral as a condition to making the new loan.

    Beyond that I don't imagine any borrower being dumb enough to upgrade his collateral if he doesn't have to. If that's what your intention is, it just doesn't make any sense to me.

    And you refer to "collection proceedings." If the loan is already in default, fageddaboudit.

  3. #3
    Join Date
    Apr 2013
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    2

    Default Re: Structuring a Derivative Product for Loan Portfolios

    Quote Quoting adjusterjack
    View Post
    I have absolutely no expertise on your question but common sense and a knowledge of human nature tells me that a change in collateral isn't gonna happen if you've already given the borrower the money based on collateral that you accepted at the getgo.

    The only leverage you might have some day is if he wants to borrow more money for something else in the future and that's when you can insist on restructuring the first loan with better collateral as a condition to making the new loan.

    Beyond that I don't imagine any borrower being dumb enough to upgrade his collateral if he doesn't have to. If that's what your intention is, it just doesn't make any sense to me.

    And you refer to "collection proceedings." If the loan is already in default, fageddaboudit.
    Hi,

    Thanks for your opinion. Actually I have already made a structure where I can do this for new loans and it works because bank will get a capital relief by having borrower swap their low quality collateral with ours. Banks do raise capital at around 10-15% these days and we are talking at much lower rate so the product sells.

    However for existing loans I could not find any way to do this apart from a "guaranty" structure where collateral is not exchanged by a guaranty is placed that triggers at bankruptcy. But again I am not a big fan of "guaranty structure" since there will be higher haircut on capital relief.

    Hence this question: Is there any structure that can be devised that will enable a collateral swap for existing loans without changing loan agreement? Your answer will of great help.

    Best Regards

  4. #4
    Join Date
    Sep 2012
    Posts
    1,991

    Default Re: Structuring a Derivative Product for Loan Portfolios

    You need a securities lawyer for this, not an internet forum.

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