A SIMPLE CASE STUDY (1) :

Condition: Aging parent has a portfolio of securities but cannot sell them because he depends on the dividends for his retirement income.

Problem: Son needs funds to operate and expand a cattle ranch at a time when profits are slim. Feed, labor, fuel, equipment, and other costs associated with expanding and preserving his family business are much harder to come by via traditional bank financing due to tighter lending criteria.

Solution: An ABN-Sourced Credit Line.

Details: Client (Jim) and his father (Michael) lived on ranch land in rural Texas. Though the family had good credit, their bank would not lend them the cash they needed to upgrade their farm equipment or to pay for the extra labor/supplies they desperately needed to operate the ranch profitably - a ranch which had been in their family producing beef cattle and dairy products for almost 170 years.

The cash therefore was an absolute necessity; the family had gone into debt in years past to build up the business, and though it had done well, it was blindsided by recessionary commodity price drops and reduced demand as a result. After struggling to finally pay off their old debt, they were surprised to find that their bank would not re-issue a loan to cover the next year's production. "Sorry Jim" said their banker, whom they had worked with for almost 15 years. "It's a whole new ballgame now, and unless your balance sheet shows enough cash-in-hand, we can't lend you a cent."

Jim's father Michael had been prescient of mind in his younger years. He had put aside some cash from every year's profits and put it into a well-managed dividend-paying mutual fund and some conservative government securities. On retirement at age 72, he expected to be able to live off the income from the securities into ripe old age. This was his "nest egg" and the thought of selling the securities was the last thing that anyone in the family wanted to do. In fact, they had already decided; they simply would not sacrifice Michael's retirement to keep the ranch afloat. But with ranch at risk survival in the coming year, they had to do something. The choice was a terrible one indeed.

Jim went online and found the institutional securities finance firm A. B. Nicholas. An ABN consultant examined his situation and took his case forward their lending partner, a well-established brokerage/banking institution with which offered special attention and flexibility to its clients. The institution agreed to an outstanding financing offer using the family's $740,000 worth of mutual funds as collateral with a simple lien against the securities to ensure the loan. No credit checks were required - and no reporting, thereby removing any burden on their future credit or relationship with their existing banker for future financing. An interest-only credit line with very little paperwork or red tape, almost $600,000 worth of credit was opened and available to them at an APR of only 3.75%.

He liked the fact that here would be no penalty for early repayment of the principal, in part or in whole, as long as interest-payments and very reasonable minimal portfolio value was maintained. He liked the fact that though technically a variable rate loan, the rate had not changed since 2008 and was unlikely to do so for the foreseeable future, and that he always had the option to go from a no-maturity-date credit line to a fixed rate term loan with a set maturity date, anytime he wished.

He liked the attentiveness of the licensed professional advisor at his lending institution assigned to assist him throughout with any issue or need that arose, ready to wire his funds to his bank to replenish his current capital needs. Then there was the 24/7 online access, the account statements and reports on demand, and the standard increase in credit allotted should the portfolio rise. Best of all, this was no private financing vehicle, but a fully regulated and licensed SIPC-FIDC member institution that had opened this special facility precisely for clients like Jim and Michael.

The process was simple: no up-front or application fees. A brokerage statement and a simple online one-page application. Introduction to his lender and opening of his account same day. Transfer of his securities into his own new account at his lending brokerage and a credit line from that institution's banking division. Two weeks later, he was funded.

As of that wasn't enough, all of this was within a financing structure in which the securities never changed out of Michael's ownership or title; never moved from Michael's solely-owned new brokerage account managed solely by and through FINRA-member advisors. The shares never moved from his SIPC-insured account at his new brokerage lender - unless he himself chose to sell some - and he had daily access to research and support from his advisor should he want to engage in any restructuring or trading in his account - even as it secured his financing.

Best of all, Jim's father's dividends were paid just as they always were, directly to him. This meant that his retirement remained as he'd always planned.

In the end, Michael was able to purchase the equipment, labor, and supplies he needed to save the family ranch and position it to become profitable in a recessionary year. His interest-only payments were automatically paid from the line to take pressure off current cash flow (his choice, by the way - not a requirement). When beef prices recovered, his family was able to pay the credit line down to zero again without sacrificing retirement dividends. A win-win-win around the table, without selling a single share of Michael's nest egg.

Today, their family retains sterling credit; their paid-off securities credit line was never reported because it was a simple asset based loaned and reporting was not required by the lender. Their farm is larger and more profitable then ever. Their credit line is still open and ready to draw if they wish - at no charge if they don't wish to use it. Though they can now tap more from it since their securities have risen in value over the past 18 months, Jim says "I'm keeping it. You never know when we might need it again, and it costs us nothing to retain." If he does need it again, he'll be ready: Jim won't have to jump through any loan eligibility hoops, his credit again won't be adversely affected, and he can again wire cash within an hour or write a check for any new costs or investments as they arise. (A paid-off credit line, in effect, simply reverts to a very robust brokerage account with all the features, benefits, advisory services and security of any modern licensed U. S. brokerage account.)

Since ABN is never paid or incentivized by any lender, brokerage, or bank for its services, the nominal fee that Jim paid for their services has paid for itself many times over. ABN has absolutely no incentive to steer its clients to any particular lending program and will not accept any such compensation even from any lender even if offered. ABN's job is to research and deliver what, in our view, is the best possible securities-based financing in the market to our valued clients. We're pleased to say that we do a very good job of it.

Give us a call at (202) 379-4744 or contact us here online today. Learn how we can help you get the securities-based financing that might save your ranch.

A. B. Nicholas.
Think Service.