I. Introduction

The outbreak of the current novel coronavirus (also known as COVID-19) has caused significant and wide-ranging disruptions to business and economic activity worldwide. These disruptions have similarly impacted global financial markets and financial reporting. By most accounts, the fund finance markets have seen increased activity notwithstanding (or because of) COVID-19 in the first months of 2020.¹ While the long-term impacts of COVID-19 on global financial markets are unknown, there are a few immediate issues that are likely to be relevant in the short-term for the fund finance markets.

By the time closed-end private investment funds (each, a “Fund”) have matured beyond their investment or commitment periods, they have typically called and deployed a majority of their uncalled capital commitments to acquire a portfolio of investments. As a result, such Funds often have diminished or non-existent borrowing availability under the borrowing base of a traditional subscription-backed credit facility (a “Subscription Facility”). Certain banks and other non-traditional financial institutions, including certain private credit Funds (in each case for purposes hereunder, a “Lender”), recognizing that a fully-invested Fund has inherent value in its investment portfolio, extend credit to such Funds primarily based on the net-asset-value (“NAV”) of a Fund’s investment portfolio (an “NAV Credit Facility”). While NAV Credit Facilities may have multiple Lenders (or are structured to permit multiple Lenders), they are often bilateral facilities, allowing the single Lender and the Fund the latitude necessary to negotiate and address the many challenges resulting from COVID-19.

It is important to note, that notwithstanding the potential challenges created by COVID-19, fund finance market participants continue to express substantial interest in NAV Credit Facilities. Many Funds and Lenders have conveyed to Mayer Brown that opportunities may be available for new NAV Credit Facilities due to these market disruptions. As evidence of such optimism, a...