Us: NAV Place – The Swiss Army Knife Of the Fund Money Sector

It is which independence which drives the worth of the product so you can each other sponsors and you will buyers (and you can keeps mortgage structurers in addition to their lawyers the same on their leg and up late at night)

I continue steadily to get a hold of significant need for NAV capital products in the U.S. and you may Western european avenues, that’s mirrored during the double hand 12 months-over-12 months growth in our very own contract interest of these organization to date. Compared to the many years past, there’ve been a noticeable uptick in the brand new loan providers prepared to provide NAV funding (plus both banking institutions and private lenders). From inside the middle-2020, at the outset of the newest pandemic, the fresh new surge in the interest in NAV financing regarding sponsors try anecdotally said because of the (i) sponsors becoming hesitant to call funding of LPs within the suspicion of your pandemic and you will (ii) the shortcoming of private equity-supported enterprises to obtain reasonable money in the disturbances as a result of COVID shutdowns. Still, because these pandemic consequences continue payday loans Pineville LA to disappear and in addition we shift so you can a very other macroeconomic ecosystem, this new demand for NAV lending stays strong. Less than is actually a top-peak overview of some of the key top features of NAV financing, some of which will be attention of our discussions that have customers.

This new allure from NAV funds isn’t that NAV credit brings a gold bullet so you’re able to a specific issue faced from the solution capital sector during the-higher. As an alternative, it is you to definitely NAV money can be arranged/designed to address any number of activities.

Once the NAV fund commonly a-one-size-fits-every tool, i don’t have but really an extremely one-size-fits-most of the identity sheet. As an alternative, to begin with assembling the latest skeleton from an expression piece to possess an effective NAV financing you would need to know the following (on top of other things):

(xi) is there extra borrowing help provided, such promises regarding resource responsibilities, promises or equity connection emails out-of mother fund;

To show it in the direction from external the recommendations, an everyday demand that people will score out-of loan providers that are looking investigating adding NAV financing on the device offering try to incorporate these with a sample name layer to review

Once we explore NAV fund which have readers which might be fresh to the room, we basically determine such funds as falling on several broad categories:

1. Bad Hope/»Security Lite» Money: The first consists of very low loan-to-value facilities to larger, more diversified funds, where lenders typically do not take investment assets as collateral but instead underwrite the value of the fund as a whole (often coupled with a negative pledge of the fund’s assets and a pledge of the fund’s bank accounts). See previous discussion of these types of facilities from our colleague Leah Edelboim here.
2. Fully Secured finance: The second bucket consists of what are typically higher loan-to-value facilities or facilities to more concentrated funds (or subsidiary vehicles of such funds), where lenders will take a security interest in the fund’s investment assets (often indirectly, as previously discussed here). These facilities tend to have much more structured collateral and credit support. In addition, since these facilities are underwritten based on the value of specific investments (rather than the value of the fund itself) it is imperative that lenders understand all aspects of the investments supporting the loan, and lenders may look to map out in detail an exit plan should the facility go into default. See our prior coverage here of the common issues that arise in evaluating security structures for these types of loans.
3. Arranged Facts: The third bucket consists of preferred shares or similar structured products whereby financing is provided to a fund in the form of a purchase of a security issued by the fund. The security can provide for a fixed rate of return, a floating rate of return (typically tied to a benchmark or index) or a structured rate of return that is dependent on the performance of the fund’s assets. Such structured products tend to arise in the middle of the capital structure, behind secured creditors but ahead of equity investors. They tend to have longer terms and higher rates of return. And they can be structured to differentiate returns among holders of the products, including by class or series. We’ll provide a more detailed discussion of such products on another day.