What happens when an individual needs capital, but doesn't want to liquidate a position? Swift Transportation (NYSE: SWFT), is the largest commercial transport carrier in the United States. With a fleet of 16,000 vehicles and more than 17,000 employees, Swift Transportation supports leading global organizations such as Walmart and FedEx.
In 2012, a major shareholder of SWFT approached Equities First Holdings (EFH) to secure a loan collateralised by a portion of stock holdings in SWFT. At the time, the company had a market capitalitalisation of approximately $1.2 billion (USD).
After agreeing to terms, EFH entered into the transaction with the borrower via a corporate vehicle, with total loan proceeds of roughly $30 million (USD).
The transaction was divided into five tranches, executed over a five week period in late 2012.
Once the loan was executed, the borrower paid quarterly interest payments. Based on the borrower's position in the company and the number of shares he owned, he was required to disclose this transaction to the United States Securities and Exchange Commission, which he did.
Does an Equities First Holdings transaction impact share price? The first question we often get regarding EFH transactions is, "Will this impact the share price of my stock?" And, while we cannot make concrete statements about the overall health of the market or a company's stock performance, we can say that all EFH transactions are designed and managed to minimize impact on share price. This methodology empowers borrowers to access liquidity without placing pressure on stock price.
What happened when it was time to return the borrower's collateral? One of the major benefits of an EFH transaction is the fact borrowers retain all economic rights to the collateral throughout the lifecycle of the loan.
EFH borrowers often have questions related to EFH's ability to return collateral in the event of a major increase in share price. The transaction highlighted in this case study is a prime example of how EFH's hedging strategy ensures the company is is prepared to return collateral upon maturity and repayment. In fact, EFH has a perfect track record of returning collateral to borrowers upon maturity and repayment.
In the case of SWFT, the value of the stock had increased nearly 150% during the life of the loan. When EFH received the collateral, it had a value of less than $10 (USD) per share. The value of the returned collateral was nearly $25 (USD) per share.
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.