They remains to be viewed how the macroeconomic and you will political ecosystem will apply to mentor appetite getting NAV finance

They remains to be viewed how the macroeconomic and you will political ecosystem will apply to mentor appetite getting NAV finance

If you’re continued tension into the investment valuations may reduce execution, NAV loans are an organic product to deal with LP and mentor interest in exchangeability and also as an enhance so you’re able to collateral capital in what is going to most likely remain a difficult fundraising environment

  • Adding Strategic Investment. We commonly see NAV loans structured in connection with the addition of strategic investments by a fund. These loans can be structured to provide acquisition financing, or to provide back-leverage to a fund to finance the equity portion of its acquisition costs for the particular investment(s). Such facilities are typically used later in the investment cycles of funds once capital commitments have largely been called or are no longer fully available.
  • Money Returns in order to Traders. As average hold periods for private equity portfolios increase, there is continued pressure on sponsors to monetize their investments and provide liquidity to their investors. As a result, a common use of NAV loans is for sponsors to borrow at the fund level to return capital to investors. Lenders are repaid later after realization events with respect to one or more investments of the funds. In this instance, a NAV loan allows the fund to return capital to its investors in advance of one or more realization events with respect to its investments.
  • Resource for Management Enterprises. General partners and management companies use NAV loans for a range of purposes, including working capital, funding increased investment in the funds that they manage, payment of taxes, payment of bonuses, technology upgrades, distributions to owners, and succession planning (i.e., transferring ownership interests in managed funds from founders to the next generation of investment professionals), to name a few. Such facilities s from the funds or by equity in in the funds.

When you’re went on stress toward house valuations can get decelerate execution, NAV money is actually an organic tool to address LP and you will mentor need for liquidity so when an enhance to security financial support from inside the what’s going to almost certainly continue to be a difficult fundraising environment

  • Aftercare Place. For funds with ongoing liquidity needs after the expiration of their investment periods, some lenders will agree to extend a fund’s existing subscription line facility subject to certain supplemental credit enhancements, including adjustments to the borrowing base to increase borrowing capacity (e.g., a substantial increase in the borrowing base from a traditional blended advance rate of 50% up to 90% is not uncommon). In return for this increase to the borrowing base availability, lenders will typically require the implementation of NAV-style covenants to mitigate against the reduced primary source of collateral and repayment in the form of uncommitted capital for these facilities and look “downward” at the asset value of the fund’s investments. See our colleague Chad Stackhouse’s in-depth discussion of these types of facilities here.

While proceeded tension on the asset valuations will get impede execution, NAV loans are a natural unit to deal with LP and you will recruit need for exchangeability so when a complement so you can equity financing within the exactly what will most likely remain a challenging fundraising ecosystem

  • Helps Continuation Funds. The use of financing for continuation funds has received a lot of press as of late. A continuation fund will be set up to transfer assets from an existing fund. The investors in the existing funds can elect to either be cashed out of the investment or to roll their equity into the new fund alongside new and existing investors. The purchase payment by the continuation fund for the transferred asset(s) (which is used to pay out exiting investors) may be funded in part using debt under a NAV loan.

Credit crunch, conflict and you can rate of interest develops are some of the of many headwinds getting areas in the coming months/years. It is the self-reliance out-of NAV structures in addition to their numerous apps to own sponsors one act as a knowledgeable prognosticator for proceeded powerful growth.

The content with the post is meant to promote a standard help guide to the subject number. Pro pointers are needed regarding your certain affairs.

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