Will this leverage strategy work?

[johnataylor]

Hello everyone,

I need some advice. I run a private money lending group out of San Francisco. We have about $1.5M in equity. The market for our loans is huge, so we're looking for a way to leverage into some credit facilities to increase our lending capacity.

The credit crunch has tightened access to funds. Most banks want strict collateral to lend against. We've looked into "structrured financing," and the whole SBLC/BG and leased instrument thing looks like a fraud. Our best bet, it seems, would be to acquire truly asset-backed collateral to use for acquiring a line of credit.

We're thinking bonds, and we're wondering if there's a way to leverage our exisitng capital into a zero coupon, 10 or 20-year bond. For example, is there a way to take $4M and get 4:1 leverage (or better?) into a bond that yields $16M at maturity? We'd then put this bond up for collateral to obtain a 1:1 line of credit.

If there's a way to get this done, please let me know. If you understand what we're trying to accomplish, but think there's a better way of doing it, please let me know as well. Thanks!

[aiki14]

Hello everyone,

I need some advice. I run a private money lending group out of San Francisco. We have about $1.5M in equity. The market for our loans is huge, so we're looking for a way to leverage into some credit facilities to increase our lending capacity.

The credit crunch has tightened access to funds. Most banks want strict collateral to lend against. We've looked into "structrured financing," and the whole SBLC/BG and leased instrument thing looks like a fraud. Our best bet, it seems, would be to acquire truly asset-backed collateral to use for acquiring a line of credit.

We're thinking bonds, and we're wondering if there's a way to leverage our exisitng capital into a zero coupon, 10 or 20-year bond. For example, is there a way to take $4M and get 4:1 leverage (or better?) into a bond that yields $16M at maturity? We'd then put this bond up for collateral to obtain a 1:1 line of credit.

If there's a way to get this done, please let me know. If you understand what we're trying to accomplish, but think there's a better way of doing it, please let me know as well. Thanks!

In this climate I can't believe a bank would loan against leverage. the value of your position is the same whether you have leverage or not, just the magnitude of change increases with leverage.
Getting leverage on a bond is not possible, but again even on a bond derivative product you're gonna have a value that is what you put in plus or minus any change in value. The leverage implies risk, so the bank would most likely loan less on a leveraged product than on the assets alone, if they would loan against a leveraged asset at all. And of course you will end up paying interest based on the risk. It appears you are asking for something for nothing, albeit in a complicated way.

[netwrangler]

Hello everyone,

I need some advice. I run a private money lending group out of San Francisco. We have about $1.5M in equity. The market for our loans is huge, so we're looking for a way to leverage into some credit facilities to increase our lending capacity.

The credit crunch has tightened access to funds. Most banks want strict collateral to lend against. We've looked into "structrured financing," and the whole SBLC/BG and leased instrument thing looks like a fraud. Our best bet, it seems, would be to acquire truly asset-backed collateral to use for acquiring a line of credit.

We're thinking bonds, and we're wondering if there's a way to leverage our exisitng capital into a zero coupon, 10 or 20-year bond. For example, is there a way to take $4M and get 4:1 leverage (or better?) into a bond that yields $16M at maturity? We'd then put this bond up for collateral to obtain a 1:1 line of credit.

If there's a way to get this done, please let me know. If you understand what we're trying to accomplish, but think there's a better way of doing it, please let me know as well. Thanks!Are you loaning money to businesses or to individuals?

[johnataylor]

Thanks for your input everyone.

We are loaning to individuals, typically investors who are taking advantage of the downturn in the real estate market to snap-up distressed properties at very low prices. Our loans are secured by 1st DOTs at 65% LTV or better.

[wallstreetsedge]

actually... you can leverage into us treasuries..

i havent looked at it in over 8+ months but back then i remember being able to leverage it enough to make about 20% annually.. i think it was 5:1, not sure if they tightened everything because of the recent issues

the treasuries appear as cash to everyone and the cash earned offsets interest rates.. you can do this anywhere whether with stock, real estate, loans, etc