It’s it autonomy that drives the worth of the product in order to each other sponsors and you can dealers (and you may provides loan structurers in addition to their solicitors similar to their base and up late into the evening)
I still find significant need for NAV capital items in the You.S. and Western european places, that’s shown during the double finger year-over-season development in all of our offer pastime for these business so far. Compared to the many years earlier in the day, there were a noticeable uptick within the this new loan providers ready to provide NAV financing (in addition to each other finance companies and private loan providers). Inside the mid-2020, at the start of the brand new pandemic, the new surge when https://tennesseetitleloans.net/cities/erwin/ you look at the demand for NAV financing regarding sponsors are anecdotally explained by the (i) sponsors are reluctant to call financial support off LPs in the suspicion of your pandemic and you may (ii) the shortcoming out-of private security-supported people to obtain sensible financial support in disruptions because of COVID shutdowns. Still, because these pandemic consequences still fade therefore we shift in order to an incredibly other macroeconomic ecosystem, the fresh need for NAV financing remains solid. Less than try a leading-peak post on a number of the secret top features of NAV financing, some of which are definitely the interest your talks having website subscribers.
The brand new appeal off NAV loans isn’t that NAV financing brings a silver bullet in order to a specific question confronted by choice investment market in the-higher. As an alternative, it’s one to NAV financing shall be organized/customized to deal with numerous points.
While the NAV finance are not a single-size-fits-all the tool, there isn’t yet a very one-size-fits-every term piece. Alternatively, first off piecing together the latest bones out-of a term layer for a NAV mortgage you would have to understand pursuing the (among other things):
(xi) will there be even more borrowing from the bank support offered, particularly promises of investment duties, guarantees or guarantee union letters of father or mother financing;
To teach it regarding perspective out of outside counsel, a consistent request that individuals will score regarding loan providers which can be looking examining adding NAV money to their product giving try to include all of them with an example identity piece to review
When we talk about NAV loans having subscribers which can be a new comer to the bedroom, i essentially identify such finance as the dropping into the numerous wider categories:
- Negative Guarantee/”Guarantee Lite” Financing: 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.
- Arranged Situations: 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.