What is “Re-hypothecation?”

Re-hypothecation is the practice of financial institutions to reuse the assets posted by clients as collateral to secure any loans that they have with said financial institution.

This is a critical requirement for Non-Recourse Lenders but is also a common practice even with margin loans (full recourse) offered by banks and securities houses, even if it is not disclosed in their Loan Agreements.

Unlike other Non-Recourse Lenders, the Non-Recourse Loans offered by Origin8 utilize re-hypothecation for the following purposes:

• Margin Creation - Assets posted to the Lender becomes a pool of assets in which the Lender posts as collateral to expand its investable assets on a fund level.
• Sector Reallocation - The Lender may re-hypothecate and trade in line with their portfolio management policies on sector allocation and diversification.
• Hedge Downside Risk - When the Lender believes with reasonable cause that share price is facing significant headwinds.
• Borrower Default - When the Lender is certain that the loan will default with no intention from the Borrower to cure.

The re-hypothecation process is managed by utilizing a specialized investment portfolio structured to not only secure margin for the portfolio, but to also manages downside risks while targeting upside gains.

This process is handled closely between the Lender and its Prime Broker and Asset Manager to monitor the daily fluctuation of mark-to-market values for margin management.

By utilizing this type of structure, Borrowers can be assured that their assets are far safer than if they chose to borrower from a Quasi Lender.

This is because the practices used by Quasi Lenders is simply to unload or dump the shares to the market upon receiving them, primarily because they lack the capital or credit facilities to fund their own loans. Also this practice can help to trigger a potential collateral value default so that the Quasi Lender does not have to incur the costs of servicing their loans or returning shares to the Borrower upon repayment.

This highlights the benefits of working with Origin8 and its funding partners who are licensed and regulated funds.

So if you are interested in borrowing from Origin8 or becoming an Agent, please contact me to discuss.

Michael Rowe

Sr. Loan Advisor

Origin8

[email protected]