One who intends to leave others better off for his having existed.

2/4/14

How Margin Maintenance Call Runs Work and What Could Happen to the GPAC financing deal

A margin call occurs after an investor borrows to purchase investments
while using current investments as collateral
and the brokerage firm who lent the money asks for more
if the account's value declines below required levels.

Most brokerage firms allow from two to five days to meet the call.

If an investor purchases $100,000 worth of securities
with an initial investment of $50,000
and a loan of $50,000 with a 30% "maintenance" requirement
and the account falls below $80,000, the investor should recieve a margin call.

So $79,999 = 29,999 (less than 30% of the $100,000) in equity
and $50,000 owed = a maintanece call.

If the investments go up before the money is due
usually somewhere between two and five days,
meaning if the account rises above $80,000 above the 30%,
the margin call is considered to have been met
and the investor doesn't have to sell or supply more money.

If the the $100,000 falls under $80,000,
and the investor still owes $50,000 plus interest
and the account doesn't go back up in time
the investor has to either sell enough to bring the account into compliance
or inject more money into the account to bring the equity back up over 30%.

If the investor doesn't act, the brokerage firm usually does
as the brokerage has the right to sell securities to increase an account's equity
until it rises above the maintenance margin.

This is suddenly important because margin debt is at record highs;


Margin maintenance calls can feed off margin maintenance calls.

If the GPAC is financed with an asset backed loan based on this kind of structure, and the value of the assets fall to where a maintenance call comes from whomever loaned the money, the Community Foundation doesn't appear to have monies set aside to pay, which appears to be why some want to use the taxpayer financed building as collateral, which means Greensboro's $30 million would be at risk.

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