We first examined subscription credit facilities in this column several years ago.1 Since that time, the demand for these facilities, also known as capital call facilities, has continued unabated. The popularity of these facilities is a result of several factors, among them being the increase in the number and size of investment funds, and the solid credit performance of these funds as borrowers over the years, including through the 2008 recession.

In their most general terms, subscription credit facilities are revolving credit facilities for investment funds secured by the obligations of investors to make capital contributions to such funds. While these funds were initially formed to invest in real estate, they have since expanded into many other asset classes, including energy, transportation and infrastructure. As the market for these facilities has matured, borrowers have sought, and in certain cases successfully negotiated, more beneficial collateral arrangements. One example of this is that some facilities are now forgoing investor consent letters, which letters give lenders direct privity with a fund’s investors. Another example is the expansion of the collateral for these facilities beyond capital call commitments to the actual investments acquired by the funds. Today we examine these and other recent developments in this market.

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