Non-Recourse, Limited-Recourse, and Full-Recourse Stock Loans.

Stock-loan documentation distinguishes between three recourse profiles. The differences are not pricing differences; they are differences in the structural allocation of risk between borrower and lender. Choosing the right profile for a specific position is one of the principal decisions at the structuring stage.

Full-recourse: the simplest profile

In a full-recourse structure, the borrower is liable for the full amount of the loan irrespective of the value of the pledged shares. If the pledged collateral is realised by the lender at a value less than the outstanding loan, the borrower owes the difference as a deficiency claim. Full-recourse is the structure most common in standard banking practice; it preserves the highest LTV but exposes the borrower to a tail risk on the underlying.

Full-recourse is appropriate where the borrower has the financial standing to absorb a deficiency claim and is principally seeking maximum LTV. For a borrower with substantial unencumbered net worth beyond the pledged position, a deficiency claim is manageable; the LTV advantage of full-recourse may be worth accepting the tail risk.

It is inappropriate where the pledged position represents a substantial portion of the borrower’s total net worth. In that case, a fall in the underlying that triggers liquidation and a deficiency claim could exceed the borrower’s resources, converting a stock-loan transaction into a personal-bankruptcy event. The instrument exists, in part, to avoid that outcome.

Non-recourse: the borrower-protective profile

In a non-recourse structure, the borrower has no liability beyond the pledged collateral. If the underlying falls and the lender realises the collateral at a value less than the outstanding loan, the loss is the lender’s. There is no deficiency claim against the borrower. The borrower’s worst-case outcome is the loss of the pledged shares.

Non-recourse is the structure most appropriate where the pledged position represents a substantial portion of the borrower’s net worth and where the borrower’s principal objective is to bound the downside. The trade-off is LTV: non-recourse structures typically run at lower LTV than full-recourse on the same underlying, because the lender is absorbing the tail risk. The LTV haircut is the price of the borrower protection.

Non-recourse is also the structure most appropriate where the borrower’s analytical view is that the underlying could materially decline. A founder who genuinely believes the share price could fall 50% may rationally accept a lower non-recourse LTV in exchange for the protection. The structure converts a personal-balance-sheet exposure into a defined-downside instrument.

Limited-recourse: the calibrated middle

Limited-recourse structures sit between the two. The borrower is liable for the loan up to a defined threshold (commonly a percentage of the loan principal, or a stated cap), but not beyond. If the underlying falls and the lender realises the collateral, the borrower covers the first portion of any deficiency up to the cap; the lender absorbs the remainder.

Limited-recourse is a calibrated middle ground. It allows the borrower to access a higher LTV than non-recourse (because the lender’s tail risk is bounded) while preserving a defined cap on the borrower’s downside. The structuring discussion is the specific cap: what level of additional liability the borrower is willing to accept, and what LTV the lender will offer at that cap.

Trigger structures within each profile

Each of the three profiles is further specified by its trigger structure — the events that cause the lender to act and the consequences of those events. The principal triggers:

• i
  Margin trigger. A fall in the underlying below a defined threshold (commonly expressed as a percentage of inception value, or as an LTV breach) triggers a margin call. The borrower has a defined period to meet the call — with cash, additional collateral, or partial repayment — failing which the lender may realise the pledged collateral.
• ii
  Stop-loss trigger. A fall below a deeper threshold triggers automatic liquidation without a margin call. This trigger is more common in non-recourse and limited-recourse structures, where the lender’s protection depends on liquidating before the collateral falls below the loan amount.
• iii
  Floor. In non-recourse structures with a defined floor, a fall to the floor triggers transfer of the pledged collateral to the lender, releasing the borrower from further liability. The floor is the borrower’s defined downside.

The trigger structure is as important as the recourse profile. A non-recourse structure with an aggressive stop-loss trigger may, in practice, liquidate before the underlying has actually fallen far enough to materially threaten the lender — depriving the borrower of the protection that the non-recourse profile was supposed to provide. A full-recourse structure with no margin trigger may, conversely, ride a falling underlying down to deficiency — converting a manageable margin event into an unmanageable balance-sheet event.

Choosing the right profile

The choice between the three profiles is, in the firm’s framing, a function of three borrower-specific questions: How much of the borrower’s net worth does the pledged position represent? What is the borrower’s analytical view of the underlying’s downside? And what LTV does the borrower actually need from the transaction?

A high-net-worth borrower with a small pledge against a stable large-cap holding, seeking high LTV, may rationally choose full-recourse. A concentrated single-stock holder with most of their wealth in the pledged position, seeking modest liquidity, will typically be better served by non-recourse. A controlling shareholder seeking material liquidity against a substantial holding may find limited-recourse the most appropriate middle ground.

The choice is structural, not stylistic. The firm does not recommend a profile in the abstract; the profile is calibrated to the position. What the firm offers is the framework for the choice and the indicative terms across multiple profiles, so that the borrower can compare the trade-offs explicitly before deciding.