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Liquidity solutions are a topic du jour in fund finance. With bank balance sheets somewhat restricted by macroeconomic concerns and risk-weighted asset regulations, fund finance borrowers and lenders have sought creative ways to put capital to work. One construct that may open up this optionality is the tranche B facility, a subordinated line of credit that sits within the same transaction as a senior revolver or term loan. This article explores the basic tenets and nuances that may be negotiated for constructing a tranche B facility in your deals.
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As most Fund Finance Friday readers probably already know, over the summer, the Institutional Limited Partners Association issued guidance for Limited Partners and General Partners around the use of Net Asset Value based financing facilities by private equity funds. ILPA issued the Guidance to identify potential issues relevant to LPs regarding the use of NAV facilities, including (i) transparency around their use, (ii) the level of engagement by GPs with LPs to solicit LP feedback and/or consent, and (iii) how the impact of NAV-based facilities is reported. Fund Finance Friday previously summarized the Guidance when it first came out here. However, now that there has been ample time to digest, we wanted to take the opportunity to recap some of the events leading up to the Guidance, to provide insight as to the market’s reaction to it, and to highlight some practical considerations for market participants to consider in implementing its recommendations.
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Please join us in welcoming John Donnelly to the UK Fund Finance team as a Senior Attorney.
Join the Fund Finance Association for an intensive full-day training session in-person in New York on October 17, 2024. Cadwalader's Wesley Misson and Brian Foster will be presenting at the FFA University 2.0, along with other industry leaders.
Join Fund Finance Partners for cocktails and networking with investors, fund managers, bankers, and lawyers within the fund finance market.
As was briefly touched upon in a prior Fund Finance Friday article “Borrowing Base/Coverage Ratio Approaches in Subscription Finance Facilities,” a subscription facility which uses the borrowing base approach looks at each investor’s commitment to fund and the administrative agent and/or lenders deciding the level of credit that will be given to such commitment for those investors. In certain instances there may be investors that are initially excluded from the Borrowing Base due to certain side letter provisions (i.e., cease funding rights or sovereign immunity), lack of creditworthiness or other legal issues, whereby the lender is concerned about including such investor’s capital commitment in the Borrowing Base and its ability to ultimately be able to call capital on such investor.
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The American Bar Association Business Law Section hosted its fall meeting in San Diego earlier this month. For those readers not familiar with this event, this is a massive gathering of business law professionals from around the world. It includes more than 50 continuing legal education programs and other discussions and events that involve public officials and business law practitioners with about 4,500 attendees from more than 25 countries and more than 300 speakers leading those sessions or serving as panelists.
NAV Financing: The Champion of the Fund Finance Market?
Michael Peterson and Shiraz Allidina, Managing Directors of Citco Capital Solutions, discuss the rise of NAV financing, the ins and outs of its recent scrutiny, and what the future has in store in a recent article in Preqin. Read it here.