It is that it flexibility which drives the worth of this product so you can both sponsors and you may investors (and you will has loan structurers in addition to their attorneys similar on their foot or over late into the evening)
I still find high demand for NAV capital products in the U.S. and European locations, which is mirrored inside double digit seasons-over-year growth in our deal passion for those organization up to now. Versus decades earlier, we have witnessed an obvious uptick into the new loan providers willing to render NAV financing (plus both banking institutions and personal lenders). For the middle-2020, at the outset of the brand new pandemic, the brand new spike within the need for NAV lending away from sponsors was anecdotally explained from the (i) sponsors being hesitant to phone call resource of LPs from inside the suspicion of your own pandemic and (ii) the inability regarding individual collateral-backed businesses to locate sensible funding from inside the disruptions considering COVID shutdowns. Nonetheless, because these pandemic consequences still diminish and then we shift so you can a very additional macroeconomic environment, the newest demand for NAV lending remains strong. Below is actually a high-level breakdown of some of the trick top features of NAV money, some of which will be notice your conversations which have subscribers.
The brand new impress off NAV money is not that NAV financing provides a silver round to help you a specific procedure confronted by the choice money field within-large. Alternatively, it’s that NAV loans is going to be arranged/customized to deal with numerous points.
Because NAV funds are not a-one-size-fits-all the equipment, i don’t have but really a truly one to-size-fits-the title sheet. Instead, first off piecing together the skeleton regarding a term piece to have an effective NAV mortgage you would need to understand the adopting the (on top of other things):
(xi) can there be even more credit help offered, particularly promises regarding resource obligations, promises otherwise collateral connection emails away from mother or father financing;
So you can illustrate which regarding the position of additional counsel, a frequent demand we have a tendency to score from lenders payday loans Kendallville that will be wanting exploring incorporating NAV loans on their tool offering is actually to provide these with an example title sheet to review
When we speak about NAV finance that have readers that will be a new comer to the bedroom, i basically explain such as funds just like the shedding to your numerous wide groups:
- Bad Guarantee/”Collateral 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.
- 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.
- Structured Things: 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.