A subscription credit facility, also frequently referred to as a capital call facility (a “Subscription Facility”), is a loan made by a bank or other credit institution (a “Lender”) to a private equity fund (a “Fund”).² What distinguishes a Subscription Facility from other secured lending arrangements is the collateral package, which is comprised not of the underlying investment assets of the Fund but, instead, of the unfunded capital commitments (“Capital Commitments”) of the limited partners of the Fund (the “Investors”) to make capital contributions (“Capital Contributions”) when called from time to time by the Fund’s general partner (the “General Partner”).

As the Subscription Facility market continues to grow and mature,³ Lenders willing to include the widest range of Investors within the borrowing availability (the “Borrowing Base”) may enjoy a competitive advantage against Lenders that have a relatively more narrow set of Investors they will advance against, all things being equal. One way to potentially expand the borrowing capacity under a Subscription Facility is for a Lender to advance against more of the governmental Investors in the Fund and, in particular, governmental Investors that are public retirement systems (each a “System”).⁴

Historically, full Borrowing Base credit (typically a 90% advance rate) is given to Investors that are Systems with (a) a senior unsecured debt rating (or its equivalent) of BBB+ or better by Standard & Poor’s Financial Services LLC or Baa1 or better by Moody’s Investors Service, Inc., and (b) a minimum funding ratio⁵above a specified threshold (typically 90% if the Investor’s rating is BBB+/Baa1 (or equivalent) and no minimum for Investors with higher credit ratings). These rating and funding ratio criteria are often referred to as the “Applicable Requirement” in a Subscription Facility. Where it can be established that a state, county, municipality or other...