Us: NAV Facilities – The Swiss Armed forces Knife Of your Financing Finance Field

Us: NAV Facilities – The Swiss Armed forces Knife Of your Financing Finance Field

It is it independence that drives the value of the product so you’re able to one another sponsors and you will buyers (and you can keeps financing structurers in addition to their lawyers equivalent to their base or over late at night)

We always discover tall interest in NAV funding items in the You.S. and you may Western european segments, that’s reflected within the twice thumb season-over-year growth in our offer interest of these business at this point. Compared to decades early in the day, there’ve been a noticeable uptick into the the fresh new loan providers happy to promote NAV funding (in addition to each other banking institutions and personal loan providers). For the middle-2020, at the beginning of the latest pandemic, this new increase inside the demand for NAV lending from sponsors is actually anecdotally said by the (i) sponsors becoming reluctant to telephone call financing of LPs into the uncertainty of one’s pandemic and you can (ii) the shortcoming away from personal security-backed companies to track down reasonable money into the disruptions because payday loans Daly City CA of COVID shutdowns. Nevertheless, because these pandemic consequences continue to fade and we also shift in order to a very various other macroeconomic ecosystem, new need for NAV financing stays solid. Lower than are a premier-peak breakdown of some of the trick top features of NAV financing, many of which will be the notice of our discussions with customers.

The fresh new impress away from NAV loans isn’t that NAV lending brings a beneficial gold round in order to a certain procedure confronted because of the option financing sector within-highest. Instead, it’s one to NAV money will likely be organized/designed to handle numerous items.

Since NAV fund commonly a one-size-fits-the device, i don’t have but really a very you to-size-fits-all of the identity layer. Instead, to start assembling brand new bones out of an expression layer to possess an excellent NAV financing you would have to be aware of the following (on top of other things):

(xi) will there be extra credit assistance given, for example promises of money duties, promises or equity commitment characters regarding mother financing;

So you’re able to show this on angle off exterior guidance, an everyday request we tend to get regarding loan providers which might be seeking exploring including NAV financing on the unit offering is actually to add them with an example identity sheet to examine

As soon as we mention NAV loans having readers which might be new to the bedroom, i generally define for example funds once the losing into the multiple broad kinds:

  1. Negative Guarantee/”Guarantee Lite” Fund: 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. Organized Factors: 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.