Financial Stability

In the context of choosing a reverse exchange accommodator, what does “financial stability” mean? To us and to many of our clients, it has little to do with the contents of our balance sheet and a lot to do with confidence in our ability to finish what we start. The worst-case scenario for an Exchanger is that a reverse exchange starts and then stalls and fails due to entanglement in a bankruptcy proceeding. While this possibility seems far-fetched, there have been numerous QI failures recently and the status of the ongoing reverse exchanges begun by the failed QIs is anybody’s guess. Even QI subsidiaries of large publicly-traded companies are not without risk in this regard.¹ The issue in these cases is not necessarily that the reverses were done poorly but that they were not adequately protected from the possible failure of the delayed exchange business. Recall that the primary means of profit making for the vast majority of QIs is earning interest on accumulated delayed exchange proceeds and that reverse exchanges are largely an unpopular “loss leader”. If the delayed exchange business fails, which is a lot more likely in the current “perfect storm” environment, what happens to the assets held by the EATs managed by the QI? Good question!

Our view is that you needn’t have to worry about if you choose ExStra! Here are the reasons:

We have structured our firm to avoid any realistic possibility of bankruptcy entanglement. We have legally separated our operating entity (Exchange Strategies Corporation or “ExStra”) from an entity which is the EAT “parent”. ExStra’s operations have consistently been profitable. Further, ExStra has access to significant additional capital on very short notice should the need arise. We can provide the details of this arrangement in response to appropriate inquiries but the bottom-line is that ExStra will not be forced into bankruptcy because it has access to as much capital as it needs.
The EAT Parent has its own tax identity and separately files all the required federal and state tax reports. All our EATs are formed by the EAT Parent. The EAT Parent is the only member of each individual EAT, unless specific directions from a particular Exchanger are applied. The Parent EAT never incurs debt or other obligations. Each EAT has more than adequate insurance for the assets it holds. EAT are never recycled and are either transferred to the Exchanger or dissolved at the end of the exchange.
A key part of our Execution Assurance process is the ability to pre-execute and place into escrow the documents needed to complete a reverse exchange. This give Exchangers additional confidence that their exchange will conclude as expected even if the they or ExStra are not available at the necessary time.

¹ See Borden et al regarding the LandAmerica Exchange Services failure by clicking here.