Multiple transactions, the same results. In late 2011, a major shareholder of Magnum Hunter Resources (NYSE: MHR), an independent energy company that specializes in oil and natural gas exploration and acquisition, needed capital, but did not want to liquidate the shares he owned.
The borrower approached Equities First Holdings (EFH) and, based on the terms offered and the fact EFH borrowers retain all economic rights to their collateral, entered into an agreement with EFH.
After agreeing to terms, the borrower executed multiple transactions with EFH, and subsequently borrowed proceeds of more than $5 million (USD) all collateralised by 2 million shares of MHR.
Transparent, consistent transactions. The borrower’s initial loan was divided into two tranches, executed within a one week period in 2011.
- Sept. 29, 2011 – 500,000 shares – $3.70/share strike price (USD) – $1,850,000 (USD) collateral value
- Oct. 5, 2011 – 500,0000 shares – $3.70/share strike price (USD) – $1,850,000 (USD) collateral value
The borrower entered into a further transaction with EFH in 2013, again using MHR shares as collateral. This loan was completed in a single tranche.
- Aug. 1, 2013 – 1,000,000 shares – $3.98/share strike price (USD) – $3,980,000 (USD) collateral value
Equities First Holdings returns collateral on time. Every time. We often get asked, “How does EFH return my collateral?” And, the simple answer is on time, every time. Equities First Holdings has a perfect track record of both funding our clients’ transactions on time, and returning collateral to borrowers upon maturity and repayment.
What happened when it was time to return the borrower’s collateral? In the case of this transaction, the value of the stock used as collateral increased in aggregate more than 70% over the life of the transaction.
- Tranche 1 – $1,850,000 (USD) collateral value at origination – $3,165,000 (USD) collateral value at maturity – 71% increase in value
- Tranche 2 – $1,850,000 (USD) collateral value at origination – $3,165,000 (USD) collateral value at maturity – 71% increase in value
- Tranche 3 – $3,980,000 (USD) collateral value at origination – $7,070,000 (USD) collateral value at maturity – 77% increase in value
While the valuation of stocks may fluctuate and EFH does not make any representations as to the performance of any pledged stock during the lifecycle of its transactions, in this case, the borrower enjoyed an economic benefit of roughly $5.72 million (USD).
Disclaimer: Equities First Holdings transactions are intended for use by professional investors only. Equities First Holdings transactions are not marketed to or intended for use by retail investors.