It is that it autonomy that drives the worth of the product to both sponsors and you may people (and have financing structurers and their solicitors similar on their foot or more late into the evening)
We still look for extreme demand for NAV investment products in both U.S. and you may European markets, which is reflected during the twice thumb year-over-12 months growth in our deal pastime for those establishment so far. Versus decades previous, there has been a noticeable uptick inside brand new loan providers prepared to render NAV investment (as well as both banking institutions and personal loan providers). When you look at the middle-2020, at the beginning of the new pandemic, new increase in need for NAV credit out of sponsors are anecdotally explained of the (i) sponsors getting hesitant to call financial support out of LPs for the suspicion of your pandemic and you may (ii) the shortcoming from private guarantee-backed businesses to acquire sensible money within the disruptions because of COVID shutdowns. Still, since these pandemic effects continue to diminish so we move to help you an extremely different macroeconomic environment, this new demand for NAV lending stays solid. Lower than are a premier-level breakdown of some of the key top features of NAV fund, some of which may be the focus of our conversations with clients.
The fresh impress away from NAV funds is not that NAV credit provides an excellent gold round so you’re able to a certain material faced by alternative financial support market from the-large. Rather, it’s you to definitely NAV funds will likely be prepared/customized to deal with a variety of facts.
Since the NAV finance are not a-one-size-fits-the equipment, there isn’t yet an extremely you to definitely-size-fits-all the term piece. Instead, to begin with putting together the newest skeleton away from a phrase piece to own a great NAV financing you would have to know the following (on top of other things):
(xi) will there be extra borrowing help considering, eg guarantees out-of financial support responsibilities, pledges or guarantee connection characters out-of mother finance;
So you’re able to show it on the perspective off external guidance, a frequent consult we often get from loan providers which might be finding investigating adding NAV funds on the tool providing try to add all of them with a sample title layer to review
When we talk about NAV fund having members which might be fresh to the area, i fundamentally determine such as finance as dropping toward numerous wider classes:
- Negative Guarantee/”Collateral Lite” Funds: 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 title loans Tullahoma TN 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 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.