You: NAV Place – New Swiss Army Knife Of Finance Financing Markets

It is so it freedom which drives the value of the merchandise to help you both sponsors and you may dealers (and you may has mortgage structurers as well as their lawyers the same to their base or over late at night)

I always come across tall need for NAV capital items in both the You.S. and you may Western european areas, which is shown into the twice fist season-over-12 months development in all of our package hobby for those business thus far. Compared to years prior, there’ve been an apparent uptick for the the fresh lenders happy to promote NAV funding (plus both banking companies and private lenders). Inside the middle-2020, at the start of this new pandemic, the newest surge when you look at the demand for NAV lending from sponsors was anecdotally informed me from the (i) sponsors becoming hesitant to phone call funding off LPs inside the suspicion of pandemic and (ii) the shortcoming of private security-recognized people to track down reasonable resource from inside the disturbances as a result of COVID shutdowns. However, since these pandemic consequences continue to disappear and then we shift to an extremely different macroeconomic environment, the latest need for NAV financing stays strong. Less than is actually a high-top writeup on a few of the key popular features of NAV loans, some of which is the interest in our talks which have subscribers.

New impress out of NAV financing is not that NAV lending brings an effective gold round to a specific point faced from the alternative money business within-large. Rather, it is you to NAV finance is prepared/tailored to address any number of things.

Once the NAV funds are not a single-size-fits-most of the device, i don’t have yet , a very one to-size-fits-all label sheet. Rather, to start assembling the latest bones of an expression piece getting a beneficial NAV financing you would need to understand pursuing the (among other things):

(xi) will there be extra borrowing from the bank assistance offered, for example claims of money commitments, guarantees or equity partnership emails away from parent finance;

So you can train that it from the angle away from exterior the recommendations, a consistent consult we usually get away from lenders that are trying to find exploring including NAV loans to their device giving is actually to provide them with an example name layer to review

When we mention NAV loans with members that are a new comer to the area, we essentially define for example funds as losing for the several large categories:

  1. Negative Hope/”Equity Lite” Funds: 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 loans: 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 Points: 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.