Equity vs non-equity DCs

[Steamboat Bill]

Does it really matter if you join a Destination Club that offers equity or non-equity?

What I mean is....what is the ultimate difference (viewed over a 10 year membership plan) and should you try to mix vacations with investments or simply focus on a fantastic vacation club.

On the surface, equity appears to be superior to non-equity, but if the equity club charges inflated annual fees, the equity may simply offset those charges.

"Equity clubs" look like an investment, and if so, are subject to some SEC overight - similar to what you would see in other investment products.

"Non-equity clubs" are membership clubs that offer access to homes, and no investment or real estate appreciation opportunity.

According to Helium Report: Virtually all the clubs are membership, non-equity, and they want to be that way. They don't want to be REITs, investment products or timeshares - all of which have different rules and regulations. You make not like the fact that you are "parking your money in someone else's garage," but it is the way it works for now.

BelleHavens appears to be a true Equity club along with the possibility of Ultimate Resports (refunds based upon current price) and Private Escapes Platinum (rebates members yearly appreciation).

 

[PerryM]

Sadly no, and that's the problem...

Is there a difference between a Marriott and a Disney?

This is exactly the same comparison: ownership versus a Right To Use.

To be fair the, DC’s RTU does have the ability to be cashed in for an average 80% of the original purchase price.

Disney owners are free to sell their RTU at market prices and sounds like many make a profit doing so. What will happen as their RTU is just 10 years away? Collapse is the answer but Disney will probably allow owners to pay thru the nose to extend the RTU.

I don’t think I’d be as upset with the DC industry if they were 100% paid for in cash and the members put up a partially refunded deposit and told they were “buying” a RTU membership. Now the slight of hand by the DC is trying to make an expense appear to be an asset.

As to whether there is a difference between 100% ownership and 100% leveraging – that has to do with events beyond the control of the DC industry. One negative article by the Drive-By Media and the feeding frenzy to destroy that industry will commence. Sadly, the BH folks will be sucked into the same collapsing house of cards.

As long as you buy a membership with the attitude of “Oh well, I really don’t miss the money” and you got some usage out of the DC then they do offer some great condos for rent.

But to answer the question: NO, and that's the real problem with the entire DC industry.

 

[Steamboat Bill]

Is there a difference between a Marriott and a Disney?

This is exactly the same comparison: ownership versus a Right To Use.

That's EXACTLY what I was thinking....I own DVC and LOVE it as I have "worked the system" to my own advantage buying-renting-selling-rebuying and have bought over $100k in DVC contracts since the year 2000.

I also own a Marriott (resale) and LIKE it. I have not owned it long enought to say I LOVE it yet.

Even thought DVC is RTU and Marriott is deeded....who really cares? My vacation experience is the same for both, but I actually like the point system of DVC better than Marriott weeks system, but like the II trading experience of Marriott better.

I own an HCC DC week-based system...perhaps I need another DC, but a points based system.

 

[vineyarder]

Equity component is really meaningless

Does it really matter if you join a Destination Club that offers equity or non-equity?

What I mean is....what is the ultimate difference (viewed over a 10 year membership plan) and should you try to mix vacations with investments or simply focus on a fantastic vacation club.

Personally, I think that the 'equity vs. non-equity' issue should be pretty low on the list of factors to consider in deciding which destination club to join. I agree that you are really buying a right to use fabulous homes and take hassle-free vacations, not an investment, so if the deposit required to join a DC, whether it is $40K or $400K, is a significant enough portion of your assets that you need a financial ROI from it, then you shouldn't be looking at destination clubs anyway.

I think that the destinations, the homes themselves, the service, the quality and transparency of the management, availability, and reservation rules & regs are much more important factors to consider. Potentially getting back a bigger deposit than I put down is way, way down the list, because, after all, if I am happy with the club and the experience, I'll never resign, but instead pass the membership on to my kids, so it is just another paper gain that I'd never see! So if you join a 'good' club with equity, the deposit might significantly increase in value, but you'll never see it, since you'll never quit, whereas if you join a 'bad' club with equity, the deposit will not increase since it won't attract new members to buy in at a higher price!

My club (Private Escapes Platinum) has an appreciation credit in the form of annual credits against quarterly dues, based upon real estate appreciation. For me, this is the best possible 'equity' component, because I don't have to quit the club in order to realize the 'return'!! In addition, there is no downside; if the properties don't appreciate, you simply don't get a credit, but it doesn't affect your deposit amount. Based upon the past few years credits (about $3500 - $4000 per year), after 10 years in the club I'd have gotten the equivalent of an increase in my deposit of $35K - $40K, but I wouldn't have to choose whether to quit the club to cash out or stay in the club and continue to enjoy the vacation!

 

[PerryM]

Batten down the hatches....

Back in 1929 or in 2000 many a company went out of business.

Does it matter if a company is leveraged to their eyeballs? Of course it makes a difference. Does it mean that if potential customers are turned off to the market that the entire DC industry could well collapse? Of course it does.

The reason I’ve not bought a DC boils down to the DC industry may be at the Internet Bubble top of 2000 and the slightest pin prick can collapse their market. Even BH, which I believe is a true DC, will suffer.

I want to treat my investment in a DC as an investment, like our timeshares. I want to get good usage out of my money, stand a chance of using the DC for a generation, and then make a profit from it. That’s my particular goal. Others have their own goals. Mine is all encompassing.

I may have to settle for less. I may find a DC startup and decide the huge difference in cash is safer in my stock portfolio that makes 13% a year. The small amount “Invested” will then be considered “Throw away”.

So far I’m not convinced that the DC market will survive many storms ahead of it – and hence I don’t own one yet.

P.S.
A friend of mine asked me, on the very day of the 2000 top, "Just what do these Internet companies do?" I responded "They sell mailing lists to each other and leverage every penny they can out of the money they get". Sounds very much like the DC industry to me. Instead of mailing lists they may be selling membership lists to each other - what's the difference?

 

[Steamboat Bill]

As someone who rode the Interent bubble up and down...I am not convinced that the DC industry compares to the incredible hype that ocured in the 1999-2000 markets.

The internet companies then could go to a VC with a powerpoint presentation for dogcrap-dot-com and prpbably get a few million in start-up finds. You had companies LOOSING millions of dollars and were worth Billions on paper. Therey was a huge disconnect.

I actually think the DC represents a new paradigm in travel!

 

[Elsway]

Back in 1929 or in 2000 many a company went out of business.

Does it matter if a company is leveraged to their eyeballs? Of course it makes a difference. Does it mean that if potential customers are turned off to the market that the entire DC industry could well collapse? Of course it does.

The reason I’ve not bought a DC boils down to the DC industry may be at the Internet Bubble top of 2000 and the slightest pin prick can collapse their market. Even BH, which I believe is a true DC, will suffer.

I want to treat my investment in a DC as an investment, like our timeshares. I want to get good usage out of my money, stand a chance of using the DC for a generation, and then make a profit from it. That’s my particular goal. Others have their own goals. Mine is all encompassing.

I may have to settle for less. I may find a DC startup and decide the huge difference in cash is safer in my stock portfolio that makes 13% a year. The small amount “Invested” will then be considered “Throw away”.

So far I’m not convinced that the DC market will survive many storms ahead of it – and hence I don’t own one yet.

P.S.
A friend of mine asked me, on the very day of the 2000 top, "Just what do these Internet companies do?" I responded "They sell mailing lists to each other and leverage every penny they can out of the money they get". Sounds very much like the DC industry to me. Instead of mailing lists they may be selling membership lists to each other - what's the difference?

I think it is important to distinguish the cause of the Tanner and Haley bankruptcy (the only DC to fail, thus far). The cause had nothing to do with a run on the bank (i.e. a rush of members to exit the club). Tanner and Haley over promised in terms of the availability of homes during peak travel periods. If a member wanted to travel to a particular destination at a particular time - and a T&H home was not available - T&H would go out and rent a comparable home to meet the demand of the member. In doing so, T&H was incurring extraordinary expenses which caused the company to operate at a cash flow deficit.

I am certain that others DCs have learned from T&H's mistake and will not repeat their actiions.

The "gate" function on DCs works in the following fashion: A member who wishes to resign his membership has his name placed on a waiting list. His membership is not resigned (and his deposit refunded) until the club has signed up additional members (2 or 3, depending on the club). Given this gate function, It is not obvious to me that the DC industry is headed for some form of crash.

If a rash of members stopped paying their annual dues, a club could get into trouble. But, I assume, these members would be forced to abandon their deposits, thus strengthening the financial recovery positions of all those who continued to abide by the member ship policies.

 

[Sherpa]

Bill, I think you’re right, it shouldn’t matter if the club you join is equity or non equity. The management team who set up and run the clubs are setting them up to make a profit for themselves, just as in any other type of business. So the real thing that matters is the financial transparency and how much of your dollars are going into the homes and the operation of the homes and the services the club provides, and how much is going out to the management team as their share or profit.

As part of your due diligence in joining a club you should ask to go through this sort of analysis.

 

[Sherpa]

I recently came across a London based investment fund that is just launching an interesting equity destination club structure.

The fund plans to buy 30 $2.7m vacation properties around the world. Investors in the fund have 5 weeks usage of these homes each year. Unlike other destination clubs there is just one initial investment/payment and no annual dues. The way they do this is that part of the initial money goes into a fund for future operating costs. The investors will receive 70% of the property appreciation when the fund is liquidated in 10 years.

I think the tough part about this will be the usage, since they are looking for 300 investors, so 10 per home and a potential total of (5 x 10 =) 50 weeks usage per home per year, if everyone tries to use all their weeks.

On the flip side it is a very clear investment. The name of the company with a link to the full write up is Worldwide Private Residences.

This was the first "equity DC" I'd seen with this pure investment structure.

 

[PerryM]

Least we not forget...

Bill, I think you’re right, it shouldn’t matter if the club you join is equity or non equity. The management team who set up and run the clubs are setting them up to make a profit for themselves, just as in any other type of business. So the real thing that matters is the financial transparency and how much of your dollars are going into the homes and the operation of the homes and the services the club provides, and how much is going out to the management team as their share or profit.

As part of your due diligence in joining a club you should ask to go through this sort of analysis.

Of course I disagree with this approach.

All but 1 DC has nothing to backup the paper the owners sign. For the life of me I can’t see sending in a check for $60k or $200k or $500k when the management team thinks so little of me that they have no protections for my money – none. Same with the state governments - no DC laws to protect me.

All the DC club has to do is to take out a performance bond that protects the 80% or so money due me and set up specific events that must happen and I get my money back from the bond. I presented that idea to HCC and got no reply.

At least with BelleHavens they make me a shareholder in the company and the company owns the deeds to the units that I bought into. Granted, clever lawyers can do clever things but at least BelleHavens thinks enough of their members to provide some protection.

Let’s not forget what a DC is: members buy rich folks free condos and then pay rent to use them. All I’m asking for is a little protection on my money.

 

[BocaBum99]

Do people really not care if a DC is equity vs. non-equity? Isn't that like saying an secured vs. unsecured loan is the same? I don't know much about DCs. I do know that there is a lot of buzz about them and evidently many people on this board love them. When you are forking out $100k, what do you actually own?

It's very important to know what you own if things go bad. You create agreements and view them in terms of the bad scenarios that can happen. My approach to investing has always been, protect the downside and the upside will take care of itself. That is as long as the upside isn't capped by some artificial rule.

 

[PerryM]

Do people really not care if a DC is equity vs. non-equity? Isn't that like saying an secured vs. unsecured loan is the same? I don't know much about DCs. I do know that there is a lot of buzz about them and evidently many people on this board love them. When you are forking out $100k, what do you actually own?

It's very important to know what you own if things go bad. You create agreements and view them in terms of the bad scenarios that can happen. My approach to investing has always been, protect the downside and the upside will take care of itself. That is as long as the upside isn't capped by some artificial rule.

This is the Achilles Heel of the DC industry - you own nothing, you have no safeguards, and you pay rent for that privilege.

I'm waiting for the first DC to issue a bond to secure the money due back to the member when leaving the club. I'm sure this has not been the first time they have heard about this. I suspect the highly leveraged financing may have something to do with it. But I am just guessing.

Heck, the guy who climbs up on my roof to fix broken shingles from passing tornados has a $2 M bond to protect me from him. Are the DCs so unstable as to not protect me from them too?

 

[smbrannan]

I'm waiting for the first DC to issue a bond to secure the money due back to the member when leaving the club. I'm sure this has not been the first time they have heard about this. I suspect the highly leveraged financing may have something to do with it. But I am just guessing.

PerryM - you will have to wait a long time until you get a bond for 80% of your investment. If the DC takes out mortgages for 50% of the value of the properties, then the only collateral that the DC could provide to the bank issuing the bond would be their equity interest in the properties. If a bank issued a bond for 80% of the members contributions, this would mean that the properties would effectively be 90% debt financed (50% mortgage and 80% of 50% = 40% bond).

Most banks aren't that dumb.

But I don't see why the DC couldn't provide their members with a second lien on the properties. It would be subordinate to the mortgages, but if the DC started to implode, it would give the members some hope of recovering part of their investment.

 

[BocaBum99]

So, if the DC founders decided to take 2nd mortgages on all of the properties up to 80% LTV, collected upfront fees for 50 new members and all of the maintenance fees for current owners, and moved to latin American, everyone who put up $100k would have nothing. Did I get that right?

This will probably happen at some point in time. Just hope you don't own one of those DCs.

 

[smbrannan]

So, if the DC founders decided to take 2nd mortgages on all of the properties up to 80% LTV, collected upfront fees for 50 new members and all of the maintenance fees for current owners, and moved to latin American, everyone who put up $100k would have nothing.

Did I get that right?

I don't think so. I was trying to say that instead of giving their members a mere promise to refund 80% of their upfront fees, the DC could backstop that promise to all members with a 2nd lien on the properties.

So long as the DC remains solvent, then members have to wait for the 2in/1out or 3in/1out mechanism to generate cash to refund their deposits. But if the DC goes belly up - and the properties are sold - members have a place in the line-up for distribution of cash by the trustee-in-bankruptcy.

It's no guarantee, like PerryM is looking for, but its a lot better than nothing.

 

[Steamboat Bill]

There may be a day when one or more DC's implode or even scam their members. However, I think as long as you stick with the top 10 clubs or better yet, the top 5-6 clubs, the odds of this happening are minimal.

Destination Clubs are no different than Golf Clubs, Fishing Clubs, Spa and Resort Clubs, etc. and you don't hear about the doom and gloom in those industries.

I, for one, feel the benefits FAR outweight the risk in joining a DC. People need to STOP making a head-to-head comparison of Destination Clubs to Timeshares in terms of holding a deed.

 

[PerryM]

There may be a day when one or more DC's implode or even scam their members. However, I think as long as you stick with the top 10 clubs or better yet, the top 5-6 clubs, the odds of this happening are minimal.

Destination Clubs are no different than Golf Clubs, Fishing Clubs, Spa and Resort Clubs, etc. and you don't hear about the doom and gloom in those industries.

I, for one, feel the benefits FAR outweight the risk in joining a DC. People need to STOP making a head-to-head comparison of Destination Clubs to Timeshares in terms of holding a deed.

Bill, my main issue with DCs is security of my investment.

• I check my VISA, on line, each day.
  
• I pay a company to daily check my FICO score and send me a notice if it changes
  
• I belong to LifeLock and they monitor all my credit
  
• I belong to a credit reporting company to get my credit reports quarterly
  
• I have belonged to PrePaid legal for 25 years and pay monthly just in case someone sues me

I take every protection that I can to protect my family against thieves who live in the internet and other electronic venues.

The DC industry is asking me to forget my obsession of not being fleeced and to listen to the instructions of the person over the phone. They want me to print out the forms, send in cash (or wire it) and I’ve yet to meet a person in real life. And they want $60k - $800k at the same time.

I need assurances that the guy on the phone doesn’t live in Nigeria. So far the DC industry has turned a deaf ear towards my concerns and thus has lost my business countless times.


Which DC will be the first to address my concerns?

 

[puffpuff]

For the level of assuramce you need, I doubt any DC, includng BH, can pass your level of scrutiny.Your obession does have its privilages - you are not likely to get fleeced. It may have some downside - letting a good thing pass. To each his own.

 

[vineyarder]

DCs are not for everyone!

Bill, my main issue with DCs is security of my investment.

I check my VISA, on line, each day.

I pay a company to daily check my FICO score and send me a notice if it changes

I belong to LifeLock and they monitor all my credit

I belong to a credit reporting company to get my credit reports quarterly

I have belonged to PrePaid legal for 25 years and pay monthly just in case someone sues me

I take every protection that I can to protect my family against thieves who live in the internet and other electronic venues.

The DC industry is asking me to forget my obsession of not being fleeced and to listen to the instructions of the person over the phone. They want me to print out the forms, send in cash (or wire it) and I’ve yet to meet a person in real life. And they want $60k - $800k at the same time.

I need assurances that the guy on the phone doesn’t live in Nigeria. So far the DC industry has turned a deaf ear towards my concerns and thus has lost my business countless times.

Puffpuff is right; clearly, your level of obsession with fraud is much, much higher than the average person's, and given your reservations and concerns, it is unlikely that any DC will ever meet your requirements, so a DC is probably not right for you... but that doesn't mean that it isn't a great choice for many other people. But if you still have an interest in joining a DC, please don't even use the word 'investment' in the same sentence with 'destination club'; every destination club that I've looked at is very explicit that it is not an investment. Your best 'protection' against losing your deposit (which is generally called a deposit, not an investment) is to join a club that fits your needs so well that you will never want to quit, and that is managed well so that it will not go under... Or one where the cost savings associated with your 'discounted rentals' is so great that you have amortized the deposit in a relatively short period (i.e. 2 - 3 years), so that even if you were to lose your entire deposit, you'd still come out ahead compared to renting comparable properties for a comparable number of nights. But just because a club promised an upside doesn't mean that it is the 'best managed' or the 'best investment'... Of course, not everything that you spend money on (even a relatively large chunk of cash) is an investment; people routinely drop $120K a year on a Marquis Jet card, yet there is certainly no investment there; just like with a DC, you are renting use of an asset (i.e. a jet), because in your particular situation, it makes more sense to you, for whatever reason, to rent a jet via Marquis/NetJets rather than the options (buy a jet, charter individual flights, fly commercial). If you have concerns about never having met the management, I'm sure most legitimate DCs would be happy to have you tour their offices and meet their management; it seems that you are a skier, and since most of the major DCs seem to be based in Colorado, you should arrange to stop by and meet them next time you are out in Colorado.

On a tangent, it seems very odd to me that someone so concerned with ROI would subscribe to pre-paid legal; if you've been paying them monthly for 25 years, you've probably paid somewhere in the vicinity of $7500 in 2007 dollars. What is your exposure? If you have exposure in your profession (malpractice, securities fraud, real estate, etc.), you would certainly have coverage both for defense costs and judgements that would far exceed the coverage provided by pre-paid legal (which only covers some defense costs, but not judgements). If your exposure is personal (libel, slander, slip & fall), these are usually covered by homeowners insurance and/or umbrella policy (both defense costs and judgements). When I was young and poor, I subscribed to pre-paid legal for about a year, and when I went to get simple legal documents drawn up, the only lawyers in town that accepted pre-paid were totally incompetent and unable to handle a minor task.

 

[PerryM]

Puffpuff is right; clearly, your level of obsession with fraud is much, much higher than the average person's, and given your reservations and concerns, it is unlikely that any DC will ever meet your requirements, so a DC is probably not right for you... but that doesn't mean that it isn't a great choice for many other people. But if you still have an interest in joining a DC, please don't even use the word 'investment' in the same sentence with 'destination club'; every destination club that I've looked at is very explicit that it is not an investment. Your best 'protection' against losing your deposit (which is generally called a deposit, not an investment) is to join a club that fits your needs so well that you will never want to quit, and that is managed well so that it will not go under... Or one where the cost savings associated with your 'discounted rentals' is so great that you have amortized the deposit in a relatively short period (i.e. 2 - 3 years), so that even if you were to lose your entire deposit, you'd still come out ahead compared to renting comparable properties for a comparable number of nights. But just because a club promised an upside doesn't mean that it is the 'best managed' or the 'best investment'... Of course, not everything that you spend money on (even a relatively large chunk of cash) is an investment; people routinely drop $120K a year on a Marquis Jet card, yet there is certainly no investment there; just like with a DC, you are renting use of an asset (i.e. a jet), because in your particular situation, it makes more sense to you, for whatever reason, to rent a jet via Marquis/NetJets rather than the options (buy a jet, charter individual flights, fly commercial). If you have concerns about never having met the management, I'm sure most legitimate DCs would be happy to have you tour their offices and meet their management; it seems that you are a skier, and since most of the major DCs seem to be based in Colorado, you should arrange to stop by and meet them next time you are out in Colorado.

On a tangent, it seems very odd to me that someone so concerned with ROI would subscribe to pre-paid legal; if you've been paying them monthly for 25 years, you've probably paid somewhere in the vicinity of $7500 in 2007 dollars. What is your exposure? If you have exposure in your profession (malpractice, securities fraud, real estate, etc.), you would certainly have coverage both for defense costs and judgements that would far exceed the coverage provided by pre-paid legal (which only covers some defense costs, but not judgements). If your exposure is personal (libel, slander, slip & fall), these are usually covered by homeowners insurance and/or umbrella policy (both defense costs and judgements). When I was young and poor, I subscribed to pre-paid legal for about a year, and when I went to get simple legal documents drawn up, the only lawyers in town that accepted pre-paid were totally incompetent and unable to handle a minor task.

I got in on the first plan - I can pick any lawyer I want and they pay for it. I've never used them but it's simply insurance. I've had insurance on myself for 40 years now and all that money was wasted too (knock on wood).

Well each day I get 200+ eMails from Nigeria or folks who wish they were in Nigeria. My spam filter get's most but about 10 a day make it thru. The latest scam is how I've won the jackpot in England and how I just need to fill out their form, with SS numbers, date of birth, mother's maiden name, VISA, etc and I will get 100 Million pounds or whatever. Of course there are those pesky problems with making sure I'm who I say I am and $5,000 sent Western Union will take care of that.

The DC industry is basically the same - sign up with them and you get wonderful things. They want the same financial information but they then want $60k - $800k in cash. I get a promise that they will do a good job with it. Of course I need to pay 8% per year to make sure I'm living up to my end of the bargain.... Sounds so familiar.

Now I'm not calling the DC crooks - they are probably hard working folks who have a great idea - YOU pay for their condos and then YOU pay rent to use them. They make a killing and you get to pay for all of it.

Call me crazy but I need a little security attached to my money. I have that in the timeshare world and the condo-hotel world and thus have bought in each.

Someday a DC will pick up on the marketing gimmick of somehow protecting my 80% refund - on that day I will seriously consider it. Because of other investments I won't consider any DC for another 6 months. But, I am eager to learn how these folks do it.

 

[travelguy]

DCs, Nigeria and credit

Bill, my main issue with DCs is security of my investment.
The DC industry is asking me to forget my obsession of not being fleeced and to listen to the instructions of the person over the phone. They want me to print out the forms, send in cash (or wire it) and I’ve yet to meet a person in real life. And they want $60k - $800k at the same time.

I need assurances that the guy on the phone doesn’t live in Nigeria. So far the DC industry has turned a deaf ear towards my concerns and thus has lost my business countless times.


Which DC will be the first to address my concerns?

Perry,

I can address your concerns.

I have stood in the High Country Club offices in Denver (USA) and met with ALL their employees, shook their hands, had conversations and hung out for awhile prior to becoming a High Country Club member. They did not appear to be thieves or aliens although one was a very polite salesperson.

Other High Country Club members on this board have also been in the HCC Denver offices and met their executives.

In summary, the High Country Club execs are:

• Real live people
• Live in Denver, not Nigeria
• Communicate in person AND by phone
• Are not deaf
• Only ask for $20K-$50K
• Do not need Cash, they offer financing and take credit cards (which you can monitor)

Then again, I am just a poster on an internet forum ........

 

[PerryM]

Perry,

I can address your concerns.

I have stood in the High Country Club offices in Denver (USA) and met with ALL their employees, shook their hands, had conversations and hung out for awhile prior to becoming a High Country Club member. They did not appear to be thieves or aliens although one was a very polite salesperson.

Other High Country Club members on this board have also been in the HCC Denver offices and met their executives.

In summary, the High Country Club execs are:

• Real live people
• Live in Denver, not Nigeria
• Communicate in person AND by phone
• Are not deaf
• Only ask for $20K-$50K
• Do not need Cash, they offer financing and take credit cards (which you can monitor)

Then again, I am just a poster on an internet forum ........

Well, of course, I'm embellishing my concerns a little (who me?).

I don't doubt that the DCs in the Helium Report are real. It's the highly leveraged loans that they build their DCs on that has me very worried.

If you or I tried to do this we would be living "pay check to pay check" and god help you if you get sick and miss a day of work. I want protection from what I believe is irresponsible business policies.

 

[Elsway]

Surety Bond

The DC could, in fact, issue a surety bond to protect member deposits.

The surety would be an insurance company (not a bank). The insurance company earns money by assessing the risk of default, pricing the risk properly (collecting premiums) and diversifying their risk exposure. They expect to incur losses on certain bonds (they are undercollateralized), but they make enough in premiums to offset this exposure.

 

[PerryM]

Watch out for Holy Cows...

The DC could, in fact, issue a surety bond to protect member deposits.

The surety would be an insurance company (not a bank). The insurance company earns money by assessing the risk of default, pricing the risk properly (collecting premiums) and diversifying their risk exposure. They expect to incur losses on certain bonds (they are undercollateralized), but they make enough in premiums to offset this exposure.

Wow! Sounds easy, just takes money.

Any way to get a guesstimate on the cost for $48k (80% of HCC's $60k).

Have we solved the DC's largest weakness? Will HCC throw this in for new members? Could an insurance company indicate their assessment of the risk involved? A 3rd party assessment of the stability of a DC.

Holy Cow; a simple easy solution? Could it be?

 

[Elsway]

Here is what the DC industry needs:

Audited financial statements. CFO and CEO must sign off on accuracy subject to harsh legal penalties for material inaccuracies. (Sarbanes Oxley)

And:

Maintain net assets at a level which is greater than aggregate refundable member deposits.

Or:

Protect refundable deposits with some combination of insurance, surety bond, letter of credit, or personal (asset backed) guarantees.