When you’re continued pressure with the resource valuations get decrease implementation, NAV money are a natural tool to handle LP and you will recruit demand for exchangeability and as an enhance so you can collateral capital into the what is going to almost certainly are nevertheless a challenging fundraising environment
- Incorporating Strategic Investments. 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.
- Financing Production 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 Government Companies. 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 find yourself continued pressure towards the advantage valuations will get impede implementation, NAV finance was an organic tool to deal with LP and you may sponsor need for exchangeability and also as a complement so you’re able to equity capital for the what is going to likely will still be a difficult fundraising environment
- Aftercare Establishment. 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.
If you’re continued pressure toward investment valuations can get reduce implementation, NAV funds is actually an organic product to deal with LP and you can sponsor interest in exchangeability so when an enhance to help you collateral capital when you look at the just what will more than likely are nevertheless a difficult fundraising ecosystem
- Assists 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 no credit check payday loans in Orange CA 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.
Recession, combat and you can rate of interest develops are some of the of a lot headwinds having segments regarding the future days/decades. It is the independence away from NAV structures in addition to their myriad of software getting sponsors you to serve as a knowledgeable prognosticator for continued sturdy increases.
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