Loan Stock

A A A

DEFINITION


Common or preferred stock shares that are used as collateral to secure a loan from another party. The loan will earn a fixed interest rate, much like a standard loan, and can be secured or unsecured. A secured loan stock may also be called a convertible loan stock if the loan stock can be directly converted to common shares under specified conditions and with a pre-determined conversion rate, as with an irredeemable convertible unsecured loan stock(ICULS).

This type of financing is also known as "portfolio loan stock financing".

INVESTOPEDIA EXPLAINS


There are actually full-fledged businesses that do nothing but loan-stock transactions, allowing a portfolio holder to obtain financing based on the value of their securities, as well as other factors such as the implied volatility of their holdings. A loan-to-value (of the portfolio) ratio will be established - much like with a home mortgage - and the funds will be backed by the security holdings in the borrower's portfolio.


RELATED TERMS
  1. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  2. Irredeemable Convertible Unsecured ...

    A type of security that can be used to purchase underlying common shares. It ...
  3. Accelerated Payments

    A term associated with making additional unscheduled payments on a loan at predetermined, ...
  4. Collateral

    Property or other assets that a borrower offers a lender to secure a loan. If ...
  5. Convertible Bond

    A bond that can be converted into a predetermined amount of the company's equity ...
  6. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, that remains fixed ...
  7. Loan

    The act of giving money, property or other material goods to a another party ...
  8. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return ...
  9. Equity Financing

    The act of raising money for company activities by selling common or preferred ...
  10. Current Dividend Preference

    A safety feature of preferred shares, whereby holders of such shares are entitled ...
Related Articles
  1. Introduction To Convertible Preferred ...
    Bonds & Fixed Income

    Introduction To Convertible Preferred ...

  2. Convertible Bonds: An Introduction
    Bonds & Fixed Income

    Convertible Bonds: An Introduction

  3. What is the difference between convertible ...
    Options & Futures

    What is the difference between convertible ...

  4. Where does the stock come from when ...
    Investing

    Where does the stock come from when ...

  5. A Primer On Preferred Stocks
    Bonds & Fixed Income

    A Primer On Preferred Stocks

  6. Goldman, the Muppets and the Mystery ...
    Investing Basics

    Goldman, the Muppets and the Mystery ...

  7. Weighted Average Cost Of Capital (WACC)
    Investing

    Weighted Average Cost Of Capital (WACC)

  8. Guide To Embedded Options In Bonds
    Bonds & Fixed Income

    Guide To Embedded Options In Bonds

  9. $1 Salaried CEOs Making Millions
    Entrepreneurship

    $1 Salaried CEOs Making Millions

  10. How Will Your Investment Make Money?
    Investing Basics

    How Will Your Investment Make Money?

comments powered by Disqus
Hot Definitions
  1. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  4. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  5. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  6. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
Trading Center