How a facility is sized and structured.

A Lombard loan is sized from the collateral upward: the advance is the loan-to-value applied to the pledged portfolio’s market value, and the loan-to-value is a property of the holdings themselves rather than a figure the lender carries on a shelf. What follows is the sequence a facility actually passes through, and what moves each decision along the way. No loan-to-value, advance, or margin level is stated here, because none can honestly be given before the specific holdings have been seen. Nothing below is an offer, a quote, or a rate card. This is general information, not advice.

Stage one: the position review

Everything begins with the collateral, not with the amount requested. A facility is not sized by asking what the borrower would like and then finding security for it; it is sized by establishing what the security can properly bear. The review therefore starts with the holdings themselves: which lines, in what sizes, listed where, held in what account structure, and subject to what restrictions. A single name and a diversified book are entirely different propositions even where their market values are identical, and the review exists to establish which one is actually on the table.

No material non-public information is needed at this stage. Ticker, venue, approximate size, and the constraints the holder is already aware of are enough to establish the shape of a facility. Where the holder is an insider, a director, or a substantial shareholder, that is noted at the outset, because it changes what can be done and when.

Stage two: eligibility, line by line

Not every security in a portfolio is capable of being pledged, and eligibility is assessed line by line rather than for the portfolio as a whole. A listed, freely transferable share settling through a recognised central securities depository is straightforward. Lines carrying restrictions are not: shares still within an IPO lock-up or an orderly-market undertaking, unvested awards, stock held under a shareholder agreement with transfer or pre-emption provisions, securities suspended from trading, or holdings sitting in a wrapper whose rules prohibit their use as security. Unlisted stock generally falls outside the instrument altogether.

The output of this stage is not a number but a shortlist: the lines that can serve as collateral, the lines that cannot, and the lines that can only do so once a restriction has lapsed or a consent has been obtained. Everything that follows is calibrated to that shortlist.

Stage three: sizing — what moves the loan-to-value

The advance is the loan-to-value applied to the market value of the eligible collateral. The loan-to-value is not fixed and is not published, because it is a characteristic of the collateral rather than of the lender. What moves it:

• Liquidity and average traded volume of the specific line — how many days of ordinary turnover the position represents, and therefore whether it could be marked confidently and, if it ever had to be, worked through the market in an orderly way.
• Price volatility — how far the price can travel between valuations. More movement demands more room, and more room means a smaller fraction advanced.
• Free float — how much of the issued capital genuinely trades. A narrow float means a thin price that flatters the headline value of the stake.
• Concentration — measured against the issuer, in that the stake is a given proportion of the company, and against the holder, in that the pledged line may be one position among many or effectively the whole of the borrower’s wealth.
• The market and its settlement and enforcement regime — where the shares are listed, how they settle, whether a pledge is recognised and can be perfected cleanly, and how predictably security can be enforced there. Two comparable companies on different exchanges do not make comparable collateral.
• Currency — whether collateral and loan are denominated alike. A mismatch adds a second source of movement in the ratio, independent of the share price.
• Lock-ups and disclosure obligations — whether the shares are constrained by a lock-up, a closed period, or a shareholding-disclosure regime that would make the pledge or any eventual enforcement publicly visible.
• Recourse profile — a full-recourse structure supports a higher advance than a non-recourse one, because protection extends beyond the collateral itself.

These are read off the real holdings, which is why the loan-to-value is confirmed after review and not before it. The variables behind the calibration are set out at greater length in the note on how loan-to-value is set, and the same question is approached from the borrower’s side in how much you can borrow against shares.

Stage four: structuring the facility

Sizing answers how much; structuring answers on what terms. Four decisions do most of the work, and each of them interacts with the loan-to-value settled at the previous stage.

Tenor is set against the purpose. A bridge to a known liquidity event is structured differently from a standing facility intended to sit alongside a portfolio for years, and a longer tenor over volatile collateral demands more conservative sizing than a short one. Currency follows the use of proceeds and the borrower’s own resources; borrowing in a currency other than that of the collateral introduces an exposure that has to be either accepted deliberately or hedged, and it is far better addressed here than discovered later. Recourse is the choice of what stands behind the loan beyond the pledged securities — full, limited, or none — and it moves the advance directly, because a lender that can look only to the collateral must be more conservative about that collateral. Cost is expressed as a floating reference rate in the loan currency plus a spread, together with the arrangement and custody costs attaching to the structure. The spread reflects the same collateral characteristics that shaped the loan-to-value. No rate is stated here, and none should be inferred from anything on this page; pricing is confirmed in writing for the specific facility.

Alongside those four sit the covenants that govern the facility’s life: the level at which the collateral is monitored, the level at which a call arises, what may be substituted into or out of the pledge, how dividends and corporate actions are treated, and what notice and cure period applies if the ratio moves. These are agreed for the particular facility and written into the documentation rather than published.

Stage five: custody and the pledge

The securities are held with a qualified custodian, in an account in the borrower’s name, under arrangements designed to be bankruptcy-remote. The borrower does not transfer ownership: a Lombard loan is secured by a pledge, not by a sale or a title transfer, and beneficial ownership, economic upside, and — subject to how the documentation is drawn — dividends and voting remain with the holder. That distinction is the whole point of the instrument and is what separates it from a stock loan.

What varies is how the security is perfected, and that is a function of the market identified at the review stage. The steps required to create and perfect a valid pledge, the formalities of registration or notification, and the route by which security could be enforced all differ by jurisdiction, and they are settled before drawdown rather than after it. Where the pledge itself is disclosable in the issuer’s market, that is planned for at this point.

Stage six: drawdown

Funds are released once the pledge is in place and the conditions precedent are satisfied. A facility may be drawn in a single amount or made available as a line to be drawn as required, which for many borrowers is the more prudent shape: interest accrues on what is drawn, not on what is available, and an undrawn line is buffer held in reserve.

The most consequential decision at this stage is how much of the available amount to take. Drawing to the maximum the collateral supports leaves the thinnest possible margin for the collateral to move; drawing meaningfully below it converts headroom into resilience. The maximum is a ceiling, not a target, and treating it as a target is the most common way an otherwise sound facility becomes fragile.

Stage seven: monitoring, and the buffer

Over the life of the facility the loan amount is broadly known while the collateral value moves, so the ratio between them moves with the market. It is monitored continuously. Two levels matter: a monitoring level, at which the position is flagged and discussed, and a call level, at which the borrower is asked to restore the ratio by posting additional collateral or repaying part of the loan. Both are agreed for the specific facility and set out in the documentation; neither is published, and neither is a standard figure.

The buffer is simply the distance between where the facility is drawn and where a call would arise. It is created at drawdown, not in a crisis, and its width is a joint product of how conservatively the facility was sized and how conservatively it was drawn. Collateral that is more volatile, thinner, or more concentrated needs a wider buffer to be equally safe, which is precisely why the sizing stage matters as much as it does. The mechanics of a call itself — the notice, the cure period, the options available — are set out in the note on margin-call risk.

The ratio also responds to repayment, not only to markets. Because it depends on the loan amount as well as the collateral value, a partial repayment lowers it directly and widens the buffer, which is why paying down into a falling market is often the cleanest response available to a borrower who has the resources to do it.

Stage eight: release on repayment

On repayment of principal and accrued interest the pledge is discharged and the securities are released, unencumbered, back into the borrower’s unrestricted control. Nothing has been sold, no disposal has been made, the position has been held throughout, and any appreciation over the life of the facility has accrued to the holder. That symmetry — liquidity taken and given back without the underlying position being disturbed — is what the whole sequence is built to preserve.

The sequence at a glance

The table sets out relationships, not terms. No loan-to-value, advance, margin level, or rate appears in it, and none is implied by it.

Reading this correctly

What a walk-through can do is make the relationships concrete: the advance follows from the collateral by way of the loan-to-value; the buffer follows from how far below the maximum the facility is drawn; a fall in the collateral raises the ratio and a repayment lowers it; the pledge is released intact when the loan is repaid. What it cannot do is quote a position, and it would be misleading to try. The loan-to-value is not fixed, because it depends on the collateral: two portfolios of identical value can properly support materially different advances, and any figure published in advance of seeing the holdings — a single number or a standing range alike — invites a reader to assume terms that may not apply to them at all. Nothing here is an offer, a quote, a commitment to lend, or a rate card. A real facility is calibrated to real holdings and confirmed in writing after a review. This is general information, not advice, and the right structure for any borrower is a matter for a proper conversation.