Financing Options

[jfp]

I don’t know whether this is possible to do under the existing engine but I think it would add a lot of depth to the game if the financing options could be expanded. Right now your only options to finance your enterprise is issuing stocks or borrowing on what appears to be essentially a business line of credit. It would be great if the options included preferred stock and bonds.

Preferred stock could be modeled as debt that pays a fixed rate from the company’s dividend pool. If the dividend are not enough to cover the payment it accrues so that you have to generate enough cash flow to pay all of the unpaid preferred stock before you investors (or you) see that dividend.

Bonds should be issued at a fixed rate while the business line should be a more expensive floating rate borrowing option making it a more dangerous tool in an environment of rising interest rates. Bonds could be priced according to a firms credit risk (could be based on something as simple as DSCR and LTV), the seniority of the issuance, and the demand for bonds by the market. If a company’s fortunes declined its credit rating would be downgraded making its existing bonds worth less and new ones more expensive. Also, unlike a business line there should be a lockout period on the bonds so that you cannot just pay them back whenever you feel like it which might make a player think twice before taking on debt. This would give players an incentive to better manage their cash flow and make it riskier to make a big bet if they are levered – if that new car manufacturing facility that you just built with the proceeds from your bond issuance doesn’t perform as expected you now have more to lose than just your investment.

If possible it would be great to be able to trade these bonds in a secondary market with prices adjusting based upon the prevailing interest rate and credit risk. First, it would give players something else to do with their cash. Of course if the player goes on a bond buying binge prices will rise and yields drop making it more attractive for their competitors to issue debt. In addition, it could also open up the strategy of buying up a company’s debt and potentially take control during a bankruptcy or just collect pennies on the dollar. Finally, it would make the player think more strategically when trying to buy up a competitor. You may be able to buy up all their equity without problem but you may not be able to afford taking on all that extra debt your competitor is carrying on their books – at least without a downgrade to your own credit rating!

My last thought is that it should be possible for the player to declare a special dividend from any company he/she controls so that you can relieve your companies of any large cash balances if you don’t have any good use for all the cash. After all, if a company doesn’t have an opportunity to invest its cash at a rate that exceeds its cost of capital it should be distributing the cash back to its shareholders so they can find an alternative investment that will. As a real world example Microsoft paid out a $3/share special dividend in 2004.

[JML0328]

I think being able to create banks and doing the lending as well should also be considered.

I would love to be able to lend out money in this type of business simulation.

[ajpiper2k]

I like the idea of being able to open a bank business. Specifically if I can buy and sell mortgages and make private loans.

The only thing that sours me on the banking industry is that my bank could provide my competitors with low interest loans. That is not something I would want to do as a player.

[ajpiper2k]

I would like to be able to determine the terms of a loan. For example, loans can be for 1,5 or 10 years and the interest rates could adjust accordingly. I would also like the ability to select which loans get paid off first. This would allow me to pay off due loans first and loans with higher interest first.

I also think loans can be called if a company cannot establish enough paper value to secure the loan.

Andy

[pshawny]

Yes, owning the banks is a good idea.

[Webby64286]

In the real world, banks have assets in the hundred of billions. It would be unrealistic to own them

[corrsfan]

as soon as i can in the game i always buy up the tv stations, fund them to max, and never advertise on a media thats not mine

At the very least can we not get some interest on savings (0.5% on a few billion ought to add up) , or get periodic offers from the banks to "partner" for some service (insurances, credit cards) that would return a % back over a number of years?

[Inarius]

About bank of course they own billions, but when there is a crisis, if they haven't kept enough money, they crash (because they can "make money" and only keep a % in real asset, the rest).
IRL, if you are a bank, if someone gives you 100$, you can lend 8000$ (the ratio is different according to the epoch, the general trend is lower and lower but with the recent crisis it has been a little more important). If suddenly people decide to take back its money, and if you don't have the money because you have put it elsewhere, you are in bankrupcy.
So "yes" banks have billions, but they are also very fragile.

[jkuanyew]

I like bonds! And Holding Firms