VentureBeat - Latest Comments in UBS, Merrill-Lynch and others hit start-ups with securities mess

Re: UBS, Merrill-Lynch and others hit start-ups with securities mess

Yuri Ammosov — Sun, 20 Apr 2008 08:54:23 -0000

John Wilson: this is a SECURED loan. I think it is said clearly in the story. Please take some care in reading the text you comment.

Re: UBS, Merrill-Lynch and others hit start-ups with securities mess

Jason Strike — Sat, 19 Apr 2008 03:18:26 -0000

Matt, please get your research straight. As of recently UBS has commited a loan-to-par value on most of the auction preferred securities (not 50% release on collateral) at 30-Day LIBOR plus a relatively low risk spread. I don't know of any other bank that has such favorable loan terms for it's clients. I know it's not the solution to the problem, but it at least provides a liquidity option for cash strapped companies. In addition, since most of the APS have max rates that reset at 30-Day LIBOR plus a 150bps or even higher, APS investors in most cases are able to work a positive spread, meaning they pay less for the interest charged than interest received.
The 9.1% mentioned above has to based on PRIME not LIBOR, since I've never heard of a 630bps spread. This company probably owns a bare minimum of $25k in APS and most likely not at UBS. This could also be some kind of margin loan against the APS. Please check your research again. Thank you.

Re: UBS, Merrill-Lynch and others hit start-ups with securities mess

John Wilson — Fri, 18 Apr 2008 17:38:22 -0000

9.1% unsecured loan to a start-up with relatively little by way of assets and no track record. Hmmmm. The VC complaining has evidently lost touch with reality of the money market.

Not sure why such ventures merit sub 200bps over Libor when default rates for such firms would historically be high and most companies are finding borrowing rates rising.

Moreover, the bank would have to take a high regulatory capital charge for such lending, which is a further factor in setting the interest rate. Whilst the start-up might offer the ARS by way of collateral, it's not an asset a bank is going to rate highly given its illiquidity and the potential credit risk associated with the issuer.

Given that most VC funds aren't fully invested, why doesn't the whinging VC [fund] offer to lend to the startups at slightly less than 9.1%, thereby getting their investors a better rate on the univested funds and helping out a cash flow issue for a portfolio company that might otherwise go bust. Or is it that they don't wish to take on any additional risk from these startups?