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In years past defaulting lender mechanics in a subscription credit facility may have been viewed as boiler plate language and, in most cases, the relevant provisions have not received much attention. In light of recent events in the banking industry, defaulting lender provisions have gained some renewed attention. In this article we take a look at the current general state of defaulting lender provisions and the impacts on the lender and borrower.
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Earlier this week, more than 200 of the top leaders in fund finance met at the first-ever FFA Global Leadership Summit.
Make-whole clauses (also known as prepayment premiums, call premiums or call protection) are provisions in financing transactions that require the borrower to make a specified payment to the lender if a loan is prepaid before the scheduled maturity. This payment is typically made by the borrower as a lump sum upon early termination and is designed to compensate the lender for the loss of the anticipated yield that lenders expect when providing (or committing to provide) the financing over a specified term. When drafting make-whole provisions it is important to consider the threshold question of whether the provision would be enforceable under the law of the contract.
Fitch Ratings has published its Subscription Finance Rating Criteria and an associated Feedback Report following the receipt of comments on the Exposure Draft published in February. Fitch notes that the final criteria is “substantively in line with the Exposure Draft although certain adjustments and clarifying language were added.” You can read more here.
Fitch will be hosting two webinars next week to go over the final methodology and changes from the exposure draft. These webinar pages also include links to the methodology and feedback report (which summarizes comments Fitch received).
U.S./Europe webinar: https://events.fitchratings.com/fitchfinalizessubscriptionfina
Asia webinar: https://events.fitchratings.com/fitchfinalizessubscriptionapac
Scottish limited partnerships are often used in fund structures. They are very flexible, with little restriction on the terms of their partnership agreements and few specific constitutional requirements. They are quick and easy to set up, with relatively low ongoing administration requirements. They are general business organisations from a G7 country that have been used in many other sectors too since 1907. Most importantly, they have separate legal personality from their partners and tax transparency in the UK and many other jurisdictions. It is therefore very common to see them used as feeder funds, carried interest entities, general partners and performing other fund management functions as well as being used as vehicles directly holding investments of various types.
Trevor Freeman has joined Axos Bank as senior vice president, managing director and head of fund finance, based in New York. Axos is a new entrant to the fund finance space, and Trevor and his team are working to build a subscription line lending platform there. Trevor was previously at Signature Bank, where he was a managing director and one of the founders of the bank’s Fund Banking Division.
Moody's Investors Services is hiring for a Relationship Management role with a focus on the Alternative Asset Management space to assist the U.S. FIG Commercial team. For more information, visit here.
In light of lingering effects of the pandemic on many funds and uncertain and volatile markets, sponsors are increasingly looking for alternative solutions to generate liquidity for their investors. One such solution offered by the private equity secondaries market is the continuation fund. We discuss below what a continuation fund is, benefits of using this type of transaction and potential concerns that sponsors and investors may have with these transactions, as well as common solutions.
After leaving South Dakota and taking on a full tank of gas in Tennessee last week, today we have our biggest prize in our 50-state road trip of sovereign immunity: Texas.
The International Comparative Legal Guide – Lending and Secured Finance 2023 was recently published by Global Legal Group and features a chapter on Fund Finance by Cadwalader partners Wes Misson and Sam Hutchinson. The chapter, titled “Fund Finance: Past, Present and Future,” surveys the ascendency of the fund finance market to 2021, the state of play as the financial conditions tightened, and how the market is likely to develop going forward.
You can access the chapter here.
You can read the full guide here.
The FFA has provided some sneak-preview information on FFA University 2023. Training session 1.0 will once again take place virtually on September 21, and training session 2.0 will be in person in New York on October 5. These intensive full-day training sessions are designed for both bankers and lawyers transacting under U.S. law who are either relatively new to Fund Finance or seeking an in-depth training course.