Hot Summer For Margin Rules And NAV Loans

Most net asset value (NAV) loans to fund borrowers do not include publicly traded positions in the collateral package because borrowers usually use NAV loans to finance against illiquid positions (and publicly traded positions are inherently more liquid). There are, however, times when a public position is nonetheless included in the NAV collateral either as part of the initial deal or as an addition to the collateral following a restructuring or other transaction. The presence of a public position could be considered "margin stock," which would implicate the margin rules (Regulations T, U and X issued by the Federal Reserve Board). Analysis of these regulations can be complex, but one part of these regulations is clear—that they can apply to any situation where securities traded on a national securities exchange are involved. Thus, borrowers and lenders should both be vigilant to ensure compliance. Lenders, and in particular non-bank or other NAV lenders that may not