Repaying My Debt

2019-06-12T09:42:57-07:00 March 23rd, 2018|Tags: , , , |

Weekly Impact is written for leaders by our former Executive Director, Garth Jestley, who has decades of experience in senior leadership roles in the financial services sector. Each week he will share insights on life, leadership and faith.

“…the borrower is slave to the lender.”
(Proverbs 22:7(b))

In a recent article, Jerome Favre of Bloomberg News chronicled the “dramatic unravelling of the Noble Group Commodity Trading Powerhouse” headquartered in Hong Kong. The following excerpt captures the essence.

“As spectacularly as Noble grew under Elman’s leadership…its dizzying downfall was just as staggering…with more than US$1 billion of debt coming due in the next few months and no way to pay, Noble agreed to hand over the company to creditors in a restructuring deal that will virtually wipe out its shareholders…” Noble’s shareholders learned the hard way that the borrower is “slave to the lender.”

This sorry tale brought to mind a transaction in which I was involved years ago. Unlike Noble, it worked out well and illustrates the (sometimes spectacular) economic benefits of borrowing. Risk notwithstanding, many companies and individuals borrow to amplify potential returns on their investment.

In the early 1980s, I led an international project finance unit of a Canadian bank. Our specialty was large non-recourse loans the proceeds of which, together with equity injections from project sponsors, were used to fund large projects. Project financings completed by my unit included an aluminum smelter, a metallurgical coal mine and the late Marvin Davis’s acquisition of 20th Century Fox.

In a “non-recourse” borrowing arrangement, the lenders agree to limit their recourse solely to the project without any backstopping from the project sponsor. Thus, the corporate sponsor is not “servant to the lender” although the equity investment might be forfeit if the project is unsuccessful. For accepting the incremental risk, project lenders receive a premium rate of return.

Regarding the 20th Century Fox acquisition, Davis paid $722 Million (US) of which $550 million was provided by a syndicate of banks co-led by my bank and Continental Illinois National Bank. The loan was split between a non-recourse tranche ($450 million) and a recourse tranche ($100 million).

In this case, not only did Davis make a lot of money but the loans were quickly repaid in full, mainly from the sale of non-core assets. For example, as reported by The Hollywood Reporter, “Davis sold pieces of Pebble Beach and the resort to insurance giant Aetna for $184 million, and nearly a decade later sold the rest of Pebble Beach for $840 million — more than he paid for the studio and all its assets.”

No good deeds can offset our debt to God.

According to the Bible, we are all indebted to God because of our rebellious nature, which manifests in acts of disobedience to His will. Unlike the foregoing example whereby one might shed risk through a non-recourse contractual arrangement, our debt is full recourse.

Moreover, there are no good deeds we can perform to offset the debt. In this light, there is no difference between giving $100 or $100 million to a worthwhile charity. The great news is that Jesus, the Son of God, paid IN FULL all our debt incurred as a result of past, present and future misdeeds. As a result, we can enjoy an eternal relationship with God without fear of punishment.

I encourage you to try one of our LeaderImpact peer groups, where these and other big questions are explored in an encouraging, confidential setting.

Garth Jestley is a husband, father, grandfather, leader and business executive. Most importantly, he is a follower of Jesus Christ.