It’s so it liberty which drives the worth of this product in order to both sponsors and you will traders (and you can possess mortgage structurers as well as their attorneys equivalent on their leg and up late into the evening)
I always look for high demand for NAV funding products in both U.S. and European avenues, that’s mirrored during the double little finger year-over-year development in the package craft for those business to date. Compared to the many years prior, there’ve been an apparent uptick inside the lenders prepared to render NAV resource (plus one another financial institutions and personal lenders). In mid-2020, at the start of the newest pandemic, the latest increase inside the interest in NAV lending out-of sponsors are anecdotally said because of the (i) sponsors getting reluctant to call money off LPs in uncertainty of pandemic and you will (ii) the shortcoming from personal equity-supported companies to get reasonable resource for the interruptions because of COVID shutdowns. Still, as these pandemic outcomes still disappear therefore shift in order to an extremely additional macroeconomic environment, the newest need for NAV credit remains good. Lower than are a leading-peak writeup on a few of the trick popular features of NAV fund, some of which are the interest of our own talks that have members.
Brand new attract off NAV finance is not that NAV lending provides good gold bullet in order to a particular situation encountered of the alternative money field at the-high. Rather, it’s one NAV funds are arranged/tailored to address a variety of things.
While the NAV funds are not a single-size-fits-all of the unit, i don’t have yet , a very you to-size-fits-all the term layer. Instead, to begin with putting together the new skeleton out-of a term piece getting a beneficial NAV loan you would need to understand the following (on top of other things):
(xi) can there be most borrowing from the bank help given, like promises out-of financing obligations, guarantees or equity union letters out-of parent fund;
So you can train that it regarding the position off outside counsel, an everyday request we tend to get away from lenders that are trying to find examining adding NAV money on their tool offering are to add these with a sample title sheet to examine
Once we explore NAV finance which have readers which might be not used to the room, we fundamentally define like finance given that dropping on the several wide kinds:
- Negative Guarantee/”Guarantee Lite” Loans: 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.
- Completely 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.
- Prepared Products: 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 direct payday loans Seaside CA, 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.