Updated 2025

Introduction

As the market for subscription-backed credit facilities, also known as “capital call” or “capital commitment” facilities (“Subscription Facilities”), continues to mature, we have seen co-mingled private investment funds (each, a “Fund”) seek higher advance rates and inclusion of a wider pool of investors in the borrowing base. As such, banks and other credit institutions (each, a “Lender”) extending credit to a Fund under a Subscription Facility must carefully determine the eligibility criteria regulating which uncalled capital commitments of investors in the Fund will be included (or excluded) from the borrowing base.¹ One increasingly negotiated point in recent Subscription Facilities is whether to include in the borrowing base the unfunded commitments of investors that have the right to pre-fund their allocable share of borrowings. This article provides an overview of the nature of such borrowing pre-funding rights, the reasons why investors request such rights and some of the ways in which Lenders and Funds have addressed such rights in Subscription Facilities.

Borrowing Pre-Funding Rights, Generally

An investor’s right to “pre-fund” its capital contribution (such investor, a “Pre-Funding Investor”) is typically set forth in an investor’s side letter, but may also appear in the Fund’s partnership or other operating agreement. Generally, a pre-funding right provides the investor with the option to fund its pro rata capital contribution to the Fund at a point in time (e.g., at the time of or within a short period following the incurrence of debt by the Fund), before a capital call notice is generally delivered to the investors to repay a debt obligation of the Fund.²

An investor’s pre-funding right is often limited to circumstances in which the Fund intends to borrow money. In such circumstances, the Fund’s general partner will typically agree to provide an investor with timely notice of the...