Out Of Fashion, But Share Loan Deals Survive
The Age
Monday December 15, 2003
Like Culture Club, The Love Boat, leg warmers and cashbox companies, corporate loans for executives to load up on stock were products of the '80s. Enabling business leaders to buy and hold shares theoretically aligned their interests with those of shareholders. The loans were often tailored at terms more favourable than what the banks offered.
Allan Berry, a senior consultant with the Hay Group, said that share loans had become less popular with markets falling, tax law changes and shareholder activists railing against perks not extended to the company owners. Still, there are throwbacks.
Disgraced US conglomerate Tyco ran a key employee loan program, or KELP, designed to lend executives money to cover income taxes when they gained access to formerly restricted stock.
In Australia last month, despite the protests of the Australian Shareholders Association, the Spotless Group's incoming managing director, Peter Wilson, was granted a $5.33 million loan to buy fully paid shares. Challenger Financial Services chief Chris Cuffe will be lent up to $21 million to purchase up to 40 million shares.
Mr Berry said share loans had been commonplace in Australia during the '80s. The 1987 crash changed everything as share prices plummeted, leaving the executive paying back a loan for an asset suddenly worth substantially less. ``A few companies got caught out in the crash," Mr Berry said. ``People not only walked away with nothing, they had an outstanding debt."
This led to a second generation of financing in the form of limited-recourse loans, where the obligation to repay was capped.
-- Leon Gettler
© 2003 The Age
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