Structuring and Documenting Subscription Facilities

Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Banking and Finance
- event Date
Thursday, October 21, 2021
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will discuss the structuring of subscription credit facilities, with a focus on partnership agreement provisions that provide financing flexibility, defining borrowing base and exclusion events, loan covenants particular to subscription facilities, and lender remedies. The panel will also discuss certain aspects of fund structures that drive loan agreement terms and related costs.
Faculty

Ms. McGinnis is recognized for her critical thinking in structuring, and practical advice in execution of, financing transactions for lenders, focused in particular on subscription-secured credit facilities, having worked on the product since its initial development in the late 1980’s. She is co-chair of the firm’s Fund Finance Practice Group, for which Haynes and Boone is trusted counsel for U.S. and foreign commercial and investment banks as lenders to private equity funds. Ms. McGinnis has recently represented a number of clients in hybrid collateral facilities, and works on many of the practice’s international and multi-currency transactions.

Mr. Sysel represents sponsors, borrowers, arrangers and lenders on a wide variety of financing transactions primarily in connection with fund formation, as well as leveraged acquisitions, spinoffs, recapitalizations and restructurings, across a broad range of industries. He has extensive experience in structuring, negotiating, documenting and executing complex financings, including syndicated senior facilities, mezzanine facilities and private debt placements. Mr. Sysel's work includes unsecured and secured first and second lien facilities, both cash flow-based and asset-based, with particular focus on fund subscription facilities and other types of investment fund leverage.

Mr. Martinez’ primary focus is in representing lenders and some borrowers in secured transactions at all stages of the deal, from negotiating term sheets to booking loans to various forms of workouts including preparing for structured bankruptcies. He routinely represents clients in syndicated commodities finance transactions, other traditional asset based loans, and other loans with unique collateral issues like media loans and subscription lines for funds. Mr. Martinez also has extensive experience in complex commodities swap and hedging intercreditor issues faced by senior lenders and cross-border transactions with an emphasis on Latin America, having represented clients in both multi-jurisdictional loan and merger transactions.

Ms. Go represents asset managers and their investment funds in a broad spectrum of fund-level leverage transactions for private equity, senior credit, mezzanine credit, special situations, real estate, infrastructure and other strategies. She has particular expertise advising funds with complex tax and regulatory structures on financings collateralized or supported by underlying fund investments. Ms. Go also has extensive experience in subscription-based facilities, hybrid facilities and in other types of investment fund leverage. She regularly speaks on fund finance topics and actively contributes to industry conferences and panel discussions hosted by the, American Bar Association, Fund Finance Association, and others. Ms. Go currently serves as the Vice-Chair for the Fund Finance Subcommittee of the American Bar Association.
Description
Subscription facilities serve various purposes, from financing acquisitions to giving a fund the flexibility to issue letters of credit or enter into hedging transactions. The prevalence of adoption of subscription facilities by funds demonstrates their benefits, and practitioners who structure subscription facilities with balanced consideration for the competing interests of sponsors, investors, and lenders are most likely to achieve a win-win execution of the transaction.
A lender will typically require that investors be bound by certain "bankable" provisions, most commonly contained in the fund's governing documents, but in some limited instances "investor letters" are still required. The lender will ultimately want investors to, among other things, acknowledge the lender's right to make capital calls and waive any setoff rights, counterclaim, or other defenses and to fund capital contributions to a deposit or securities account pledged to the lender as collateral.
One of the most important components of a subscription facility is the "borrowing base" which is a calculation of available capital commitments, multiplied by the advance rate and dictates how much a fund is able to borrow. Other key representations and covenants likewise relate to the uncalled investor commitments, and terms under which they can be transferred, modified or reduced, as well as the ability of the borrower to incur additional debt, pledge collateral in support, or make distributions to limited partners.
For both lenders and fund borrowers, it is important to understand the implications of UCC Article 9 and 8 on security interests in subscription line collateral and the role of non-UCC remedies in fund finance structures.
Outline
- General structure and uses of a subscription facility
- What are common "bankable" provisions and the effect of side letters?
- When are investor letters still employed?
- Ins and outs of subscription line borrowing bases
- What are some common representations and covenants unique to subscription line loan documents?
- What are the benefits and limitations of perfecting liens under the UCC?
- What are some common drivers of cost?
Benefits
The panel will review these and other critical issues:
- How can a subscription facility benefit a fund and its investors?
- What kinds of conditions or circumstances that might be considered exclusion events are in defining the borrowing base?
- What investor reps and warranties are considered standard in subscription facilities?
- How is UCC perfection achieved in a subscription credit facility?
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