Issue 28: 2014

Arts Special

Leveraging Your Art Collection

Borrowing against the value of your artwork can free up cash without disturbing your holdings.

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Beyond the intrinsic beauty of the paintings, drawings or sculptures that you own, there is a quantifiable value. U.S. Trust offers a specialized art lending program that can help you leverage your collection to generate liquidity. With art as collateral, you can unlock the value of your collection while continuing to enjoy and own it. This way you can free up funds for many purposes — to expand your collection, finance business goals or to fulfill other financial opportunities. “We lend against the value of the art,” says John Arena, a senior credit executive in fine art lending at U.S. Trust. “Art is a viable asset to leverage for cash in order to take advantage of other opportunities.”

The most likely candidates for this program, Arena says, are “serious collectors,” which in the art world means someone whose collection is valued at $10 million or more. Although U.S. Trust has made art loans based on one particularly strong piece in a collection, the preference is to have collectors borrow against a range of works because of market dynamics, where an in-demand artist may lose some of today’s luster and fall out of vogue tomorrow.

U.S. Trust takes into consideration a collector’s entire financial portfolio when assessing the suitability for an art loan. U.S. Trust will also ask about the purpose of the loan, and requires that the art be appropriately insured against loss. It’s all about working with collectors to help ensure a successful outcome when borrowing against such a personal and valuable asset. “Besides the aim of the loan,” says Arena, “the particular situations of clients are assessed when reviewing their art collections to see how much cash we can make available to them.”

Once it appears that a collector meets the criteria for an art loan, an outside appraiser is engaged to value the specific art pieces that are intended to support the loan. (Clients choose which art to use as collateral based on input from U.S. Trust as to acceptability.) There is no minimum loan size, which is a creative approach since large collectors may have minimal loan needs and U.S. Trust does not wish to dissuade them from using a valuable asset to generate cash. Clients normally may borrow up to 50% of the appraised value of the art, though Arena points out that higher advance rates can sometimes be arranged based on the client’s overall financial profile. “If a collector has good recurring cash flow and needs to borrow more, we may lend more,” he says. Because prices for art can move up or down, art used as collateral is reappraised annually. If the value rises, more funds may be available to the client, absent default.

Most of U.S. Trust’s art loans tend to be between $25 million and $50 million, Arena notes, although they can be smaller or larger (sometimes much larger).

It’s important to note that the art holdings always remain in the client’s possession. Furthermore, art can be lent to a museum or to a traveling exhibition even when pledged for the loan. (Additional requirements may apply.)

The lending program helps collectors pursue
their love of art.

While U.S. Trust does not provide art advisory or art management services, which collectors can secure from specialists in the field, the lending program can help collectors pursue their love of art while leveraging the inherent value of their paintings, drawings and sculptures. “What collectors sometimes do not realize is that, in accumulating their collections, they can actually use them to take advantage of financial opportunities,” says Arena. “They can access the value of their art via a sensible loan program.” That’s a point Arena emphasizes in speaking with collectors about the benefits of borrowing against art through the U.S. Trust offering, which has become a primary source of art loans in a lending sector now valued in billions of dollars. “The key component of the program is that clients continue to enjoy the beauty of their art in their homes while generating cash to pursue other financial opportunities,” he says. “They remain the stewards of their art today and for the next generation.”

IMPORTANT INFORMATION

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based and securities-based financing involves special risks and is not for everyone. When considering an asset-based and/or securities-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. For any loan with securities collateral, the securities or other assets in any collateral account may be sold to meet a collateral call as provided in the definitive loan documents and the client is not entitled to choose which securities or other assets will be sold. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors.

Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the “Bank”) do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.

Beyond the intrinsic beauty of the paintings, drawings or sculptures that you own, there is a quantifiable value. U.S. Trust offers a specialized art lending program that can help you leverage your collection to generate liquidity. With art as collateral, you can unlock the value of your collection while continuing to enjoy and own it. This way you can free up funds for many purposes — to expand your collection, finance business goals or to fulfill other financial opportunities. “We lend against the value of the art,” says John Arena, a senior credit executive in fine art lending at U.S. Trust. “Art is a viable asset to leverage for cash in order to take advantage of other opportunities.”

The most likely candidates for this program, Arena says, are “serious collectors,” which in the art world means someone whose collection is valued at $10 million or more. Although U.S. Trust has made art loans based on one particularly strong piece in a collection, the preference is to have collectors borrow against a range of works because of market dynamics, where an in-demand artist may lose some of today’s luster and fall out of vogue tomorrow.

U.S. Trust takes into consideration a collector’s entire financial portfolio when assessing the suitability for an art loan. U.S. Trust will also ask about the purpose of the loan, and requires that the art be appropriately insured against loss. It’s all about working with collectors to help ensure a successful outcome when borrowing against such a personal and valuable asset. “Besides the aim of the loan,” says Arena, “the particular situations of clients are assessed when reviewing their art collections to see how much cash we can make available to them.”

Once it appears that a collector meets the criteria for an art loan, an outside appraiser is engaged to value the specific art pieces that are intended to support the loan. (Clients choose which art to use as collateral based on input from U.S. Trust as to acceptability.) There is no minimum loan size, which is a creative approach since large collectors may have minimal loan needs and U.S. Trust does not wish to dissuade them from using a valuable asset to generate cash. Clients normally may borrow up to 50% of the appraised value of the art, though Arena points out that higher advance rates can sometimes be arranged based on the client’s overall financial profile. “If a collector has good recurring cash flow and needs to borrow more, we may lend more,” he says. Because prices for art can move up or down, art used as collateral is reappraised annually. If the value rises, more funds may be available to the client, absent default.

Most of U.S. Trust’s art loans tend to be between $25 million and $50 million, Arena notes, although they can be smaller or larger (sometimes much larger).

It’s important to note that the art holdings always remain in the client’s possession. Furthermore, art can be lent to a museum or to a traveling exhibition even when pledged for the loan. (Additional requirements may apply.)

The lending program helps collectors pursue
their love of art.

While U.S. Trust does not provide art advisory or art management services, which collectors can secure from specialists in the field, the lending program can help collectors pursue their love of art while leveraging the inherent value of their paintings, drawings and sculptures. “What collectors sometimes do not realize is that, in accumulating their collections, they can actually use them to take advantage of financial opportunities,” says Arena. “They can access the value of their art via a sensible loan program.” That’s a point Arena emphasizes in speaking with collectors about the benefits of borrowing against art through the U.S. Trust offering, which has become a primary source of art loans in a lending sector now valued in billions of dollars. “The key component of the program is that clients continue to enjoy the beauty of their art in their homes while generating cash to pursue other financial opportunities,” he says. “They remain the stewards of their art today and for the next generation.”

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IMPORTANT INFORMATION

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based and securities-based financing involves special risks and is not for everyone. When considering an asset-based and/or securities-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. For any loan with securities collateral, the securities or other assets in any collateral account may be sold to meet a collateral call as provided in the definitive loan documents and the client is not entitled to choose which securities or other assets will be sold. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors.

Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the “Bank”) do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.