Structuring NAV Financing for Private Funds: LTV Covenants, Multitier Transactions, Intercreditor Issues
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Banking and Finance
- event Date
Thursday, February 3, 2022
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE webinar will examine the structuring and documentation of NAV financing for private funds. The panel will discuss LTV calculation and default triggers, first/second lien structures, UCC perfection, and intercreditor arrangements with multiple lenders.
Mr. Unterberg is a member of Haynes Boone’s Executive Committee and the managing partner of the firm’s New York office. He has handled an industry-leading number of margin stock, NAV facilities, and structured equity transactions on behalf of financial institutions, private equity funds, and hedge funds. Mr. Unterberg heads up the firm’s New York-based Margin Lending and Structured Equity Practice Group and is a go-to lawyer for his clients on complex Regulation U and other regulatory matters.
Ms. Chen represents banks, credit funds, hedge funds, private equity funds, broker-dealers and other financial institutions in a wide range of financial transactions, including NAV and hybrid facilities, margin lending, hedge fund loans, syndicated financing, asset based lending, subscription facilities, and DIP financing. She regularly advises clients on complex issues regarding NAV facility structures, pledge of private equity interests, margin regulations, and Rule 144 matters. Ms. Chen also has years of experience handling complex tri-party account arrangements with major custodian banks in the U.S.
Mr. Summers advises investment banking clients, debt funds, and other lenders on credit and capital markets transactions. He has extensive experience through all phases of the deal process, from the early stages through closing and funding and also represents various corporate clients on a range of financing transactions. Banks and commercial lenders seek Mr. Summers’ advice in both syndicated credit facilities and high-yield bond financings related to leveraged buyouts and other acquisitions, and he provides ongoing counsel to agents and arrangers under those facilities. Mr. Summers’ practice also includes work on numerous subscription credit facilities, NAV loans and asset financings for private equity and debt funds. In addition, he represents fund managers and lenders in financings by fund managers relating to fee streams and other assets.
Mr. Zell represents financial institutions, private equity sponsors and public and private clients in a wide variety of debt financings and corporate transactions in connection with fund formations, leveraged acquisitions, recapitalizations, restructurings, private debt placements and other securities offerings. His practice focuses on fund financings and other types of investment fund and corporate leverage.
NAV loans are loans supported by the value of interests a private equity fund holds in its portfolio companies or other funds. The critical risk metric is the LTV ratio; for NAV loans to remain out of default, LTV ratios need to remain below certain pre-agreed thresholds. Breaching the LTV threshold can trigger remedies, including mandatory prepayment of the facility or even foreclosure. Determination of asset values and adjustments to values over time are thus critical aspects of NAV loan underwriting and documentation.
The NAV borrower structure can result in different approaches to perfection of the lender's security interest in the loan collateral. If an SPV holding company is formed, UCC financing statements will be filed against the holding company and borrowing entities. Deposit or securities accounts will be subject to control agreements in favor of the lender. If the borrower is a limited partnership, lenders will require that its general partner pledge its interest.
Lenders have become more comfortable with second liens on loan collateral, and in some cases, lenders may have senior or subordinate positions in different assets of the borrower. They should enter into an intercreditor agreement that provides who may declare defaults and exercise rights in the shared collateral, amend loan documents, or grant waivers, as well as provide for the distribution of payments and proceeds of collateral.
Other variations on standard NAV facilities have emerged. Hybrid fund finance facilities combine financing of the investors' uncalled capital commitments with financing the fund's underlying assets.
Listen as our authoritative panel discusses the nuances of NAV financing, including first/second lien and other structural variations and intercreditor issues to consider.
- NAV vs. subscription facilities: when each is most useful in the fund lifecycle
- LTV: central to NAV defaults and remedies
- Determining value for portfolio assets as opposed to "fund of funds" investments
- Adjustments to value during the loan term
- LTV default triggers and remedies
- Borrowing entity structures and UCC perfection in NAV collateral
- Senior-subordinate lien structures
- Intercreditor agreements in multiple lender transactions: key provisions
The panel will review these and other questions:
- How do valuation methodologies vary between a fund that invests directly in portfolio companies and one that invests in other funds?
- What is the standard borrowing entity structure for a NAV loan?
- How should the lender perfect its security interest in the NAV loan collateral?
- What are a NAV lender's remedies after an LTV default? How about a second lien lender?
- When is an intercreditor agreement necessary, and what are the issues to address?
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