It’s that it independence which drives the value of the item so you can both sponsors and traders (and you can have loan structurers in addition to their lawyers the exact same on their leg or over late into the evening)
We always get a hold of extreme demand for NAV capital products in both U.S. and you will Eu locations, that’s shown when you look at the double hand season-over-seasons growth in all of our package hobby for these place thus far. Compared to the ages earlier, there’ve been an evident uptick in the the brand new lenders ready to offer NAV money (and both banking companies and personal loan providers). Into the mid-2020, at the outset of the pandemic, the brand new surge inside interest in NAV credit off sponsors is anecdotally said of the (i) sponsors becoming hesitant to phone call financing out-of LPs within the uncertainty of the pandemic and you will (ii) the inability regarding personal collateral-supported organizations to locate sensible resource inside disruptions because of COVID shutdowns. Nevertheless, as these pandemic outcomes consistently fade and in addition we change in order to an incredibly various other macroeconomic environment, the latest demand for NAV credit remains solid. Below was a high-height overview of some of the key popular features of NAV loans, some of which certainly are the attract of our conversations having readers.
The fresh allure off NAV loans is not that NAV financing provides a gold round to help you a particular point experienced by the option capital business at-high. Instead, it’s that NAV financing is going to be arranged/customized to address numerous products.
As NAV financing commonly a one-size-fits-all the tool, i don’t have but really a truly you to definitely-size-fits-every identity layer. Rather, to start piecing together new skeleton out-of a phrase sheet getting a beneficial NAV financing you would need to understand adopting the (among other things):
(xi) will there be more credit service offered, such as for example pledges from resource requirements, guarantees otherwise equity partnership characters from parent financing;
To show which regarding perspective off external the recommendations, an everyday consult that people tend to get regarding loan providers which might be seeking examining incorporating NAV fund on their product providing are to provide them with an example term layer to examine
Whenever we mention NAV funds which have subscribers which can be not used to the room, i generally explain for example financing while the losing toward numerous greater categories:
- Negative Promise/”Equity 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 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 payday loans Cottonport LA 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 Affairs: 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.