It’s that it self-reliance which drives the value of the product to one another sponsors and you will dealers (and you will enjoys loan structurers as well as their attorneys similar on the toes or more late into the evening)
I always select high demand for NAV financing products in both You.S. and you can Western european markets, that’s reflected in double digit 12 months-over-seasons development in the price hobby for those business yet. Versus many years past, there were a noticeable uptick inside the fresh new lenders happy to bring NAV financing (together with both finance companies and personal loan providers). In mid-2020, at the outset of the latest pandemic, the fresh new spike in the interest in NAV lending away from sponsors was anecdotally informed me from the (i) sponsors becoming hesitant to call investment regarding LPs for the suspicion of pandemic and you may (ii) the inability regarding individual equity-supported people to acquire affordable money when you look at the disruptions considering COVID shutdowns. Still, because these pandemic consequences continue to disappear and then we shift so you’re able to a highly some other macroeconomic ecosystem, the fresh new need for NAV financing stays solid. Lower than is a high-level breakdown of a few of the key top features of NAV finance, some of which is the interest of one’s conversations having subscribers.
New allure from NAV money isn’t that NAV lending provides a good gold bullet to help you a specific issue encountered of the alternative money field at-higher. Rather, it’s that NAV finance are arranged/customized to address any number of items.
Once the NAV funds aren’t a single-size-fits-most of the device, i don’t have yet , a really that-size-fits-all the term layer. Rather, to start putting together the fresh new skeleton regarding an expression piece for an effective NAV mortgage you would have to understand pursuing the (among other things):
(xi) could there be extra borrowing assistance considering, eg promises regarding financing duties, promises otherwise equity union characters regarding mother or father fund;
To help you show it regarding direction off outside counsel, a typical consult we tend to get away from lenders that are looking for examining including NAV financing on the product providing was to provide all of them with a sample title layer to examine
Once we explore NAV fund that have website subscribers that are a new comer to the area, we essentially determine for example fund because shedding for the multiple greater groups:
- Negative Guarantee/”Equity 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.
- Totally 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.
- Prepared Circumstances: 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 title loans Erwin TN 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.