Investors in a closed-end private equity fund (a “fund”) typically make financial commitments that the fund may draw over a stipulated period. Subscription loans, secured principally by these undrawn commitments, have gained popularity as a means for funds to ensure liquidity for their portfolio investments and working capital needs while limiting the number of times they have to call capital. Used initially by real estate funds, subscription facilities have now become common for funds investing in various other asset classes (such as infrastructure, aircraft, debt and leveraged buy-outs) formed across many jurisdictions. Today, we examine some issues that secured lenders face when structuring these credits.
Background
Subscription loans—often also called capital call facilities, commitment facilities or, more generally, fund financings—typically are revolving credits with maturities up to four years. Traditionally, they have matured at the end of a fund’s commitment period, although, since many funds may continue to call capital for a limited time after the commitment period expires to finance a few specified expenditures (e.g., follow-on or protective investments, management fees, etc.), post-commitment period tenors are becoming increasingly common.1 The facilities have some attributes and documentation similar to traditional asset-based loans, but they require several unique features stemming from the nature of the collateral and fund structures, and they usually have fewer financial and reporting covenants than credits secured by accounts, inventory and other conventional asset-based collateral.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
