Lesson 20 of 20 · 8 min
What to ask your own lender
Eleven questions, each with a factual answer, none of which requires anyone's opinion.
This is the last lesson in the curriculum, and it is a list of questions. Every one has a factual answer that exists in a document or a system. None of them asks for advice, a forecast, or a judgement.
About the threshold and collateral:
- What is the maintenance threshold, and is it measured against market value or collateral value after haircuts?
- What is my collateral lending value today, and can it be provided on request?
- What advance rate applies to each of my holdings, and which holdings are ineligible?
- What concentration limits apply, and does any of my holdings currently exceed one?
- Do you act at the stated threshold, or maintain an internal buffer ahead of it?
About the rate and the charges:
- What index and spread make up my rate, how often does it reset, and can the spread be revised?
- What day-count convention applies?
- Was there a rate change during the last statement period, and on what dates?
About process:
- If a call is triggered, what notice will I receive, through what channel, and what cure period applies?
- Who selects which securities are sold, and in what order?
- Which of my other agreements with you are cross-referenced to this facility?
Ask them in writing, and keep the answers. The value is partly the information and partly the record: the answers establish a baseline against which a later revision becomes visible as a change rather than passing unnoticed.
Take the risk you can measure. One hundred lessons come down to this: you can compute your trigger value, your headroom, your multiple, and your interest. Those are the measurable parts, and they were always yours to know.
Key terms
- Factual question
- A question with an answer that exists in a document or a system. Distinct from asking for advice or a forecast.
- Baseline
- A dated record of the answers you were given. It is what makes a later change identifiable as a change.
- Written record
- Asking in writing and keeping the reply. Converts a recollection of what you were told into evidence of it.
Worked example
What the eleven answers let you compute
Suppose every question above is answered. Here is what becomes computable.
- From threshold + basis + collateral value
- Trigger value and headroom
- From the threshold alone
- Forced-sale multiple, 1 ÷ (1 − t)
- From advance rates + holdings
- Collateral lending value, and the effect of a revision
- From index + spread + convention + balance path
- The interest charge, verifiable to the cent
- From notice + cure period + settlement times
- Whether your cure plan fits the clock
- From cross-references
- Which other relationships reach this facility
Eleven factual answers produce every number in this curriculum for your own facility. None of them required a forecast.
Check yourself
Of all the questions in this lesson, which single answer unlocks the most other calculations, and why?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.