Insights
How a facility behaves. Explained.
Short, plain pieces on the mechanics of portfolio secured lending: what moves, what it means and what you can do about it.
General information only, not advice. Available to wholesale clients only, as defined in the Corporations Act 2001 (Cth).
Explainers
Three things worth understanding before you borrow.
How it works · What a margin call isWhat a margin call is, and what actually happens
Every security in a pledged portfolio carries a lending value: the percentage of its market value the lender will count as collateral. Add them up and you have the facility’s lending capacity. The difference between that capacity and what you have drawn is your buffer.
Markets move every day, so capacity moves every day. If prices fall far enough that what you have drawn exceeds the capacity, you are in shortfall, and a margin call follows: a request to restore the position within an agreed period. There are three ways to do that: repay part of the loan, add eligible security, or sell some holdings. If the shortfall is not restored in time, the lender may sell pledged securities to restore it, in an order and on terms set out in the facility documents.
Two things keep margin calls rare. Drawing well inside the capacity, so a fall has room to happen; and monitoring that tells you and your adviser early, while the options are still yours. At Volans both are built in.
How it works · How lending value is setHow lending value is set, instrument by instrument
A facility’s size is not a fixed percentage of every portfolio. Each security is assessed on its own: how liquid it is, how volatile, how deep the market is on the day it would have to be sold, and how much of the portfolio it represents. A large-cap share in a deep market earns a high lending value; a thinly traded holding earns a lower one, or none; a position that dominates the portfolio is margined more conservatively than the same holding in a diversified mix.
The result is a lending value for each line and a capacity for the whole, recalculated as markets move. It is why “up to 80%” is an upper limit rather than a promise, and why two portfolios of the same size can support different facilities. Before any facility is offered, you see the lending value of each holding and the capacity they add up to.
How it works · Borrowing in another currencyBorrowing in another currency: what to weigh
A facility can be drawn in the currency of the asset or of the purpose: Australian dollars against an ASX portfolio, or US dollars to settle a US acquisition against the same portfolio. Each drawdown is priced from that currency’s official overnight rate plus your margin, with no conversion and no second spread.
The thing to weigh is the mismatch. If the security is in one currency and the loan in another, a move in the exchange rate changes the loan-to-value even when prices stand still. Borrowing in the currency you will spend removes conversion cost; borrowing in the currency of the collateral removes exchange-rate risk from the facility. Which matters more depends on what the funds are for and how long they will be out. Your adviser and the facility documents set out how the exchange rate is applied to capacity.
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