It is that it independence that drives the value of this product to help you one another sponsors and you may dealers (and you will have loan structurers and their lawyers alike to their leg and up late at night)

I always find tall interest in NAV resource products in both the You.S. and Eu avenues, which is shown in the double digit season-over-seasons development in all of our contract hobby of these business so far. Compared to the ages earlier in the day, there has been an obvious uptick inside the new loan providers ready to promote NAV financial support (together with both banking institutions and personal lenders). payday loans of Warsaw In middle-2020, at the beginning of the latest pandemic, the latest surge inside the demand for NAV credit out of sponsors was anecdotally told me by (i) sponsors becoming reluctant to label funding from LPs inside suspicion of your pandemic and you will (ii) the inability away from personal security-supported businesses to track down affordable resource in disturbances due to COVID shutdowns. However, as these pandemic consequences continue to diminish and we also change so you’re able to an extremely some other macroeconomic ecosystem, this new need for NAV lending stays good. Less than try a top-height report on a few of the key top features of NAV financing, many of which will be attention of our discussions which have customers.

The fresh charm out of NAV finance is not that NAV credit brings a silver bullet in order to a specific topic experienced from the option capital field in the-higher. Rather, it is you to NAV finance will likely be arranged/customized to deal with any number of points.

Given that NAV money are not a-one-size-fits-all of the tool, there isn’t yet an extremely one to-size-fits-every label piece. As an alternative, to begin with putting together this new bones regarding a phrase piece to possess an effective NAV loan you would need to be aware of the following (on top of other things):

(xi) could there be more borrowing help provided, for example claims from resource commitments, promises or collateral connection emails regarding mother or father loans;

So you can teach which about perspective regarding exterior counsel, a frequent demand that individuals tend to score off lenders which might be in search of exploring adding NAV funds on their tool providing is actually to include all of them with an example identity piece to review

Once we talk about NAV funds having readers that are fresh to the room, i fundamentally explain such as for instance financing while the falling toward multiple greater categories:

1. Negative Pledge/”Equity Lite” Money: 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. Completely 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. Prepared 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.