Updated June 2024
The first step in determining if a subscription credit facility, often called a capital call facility (a “Subscription Facility”), is a viable option for a private equity or similar investment fund (a “Fund”) is to diligence the limited partnership agreement or other organizational document of the Fund (the “LPA”). Subscription Facility lenders usually require that specific concepts and language be included in an LPA in order to provide a Subscription Facility without additional credit support, such as investor consent letters. Below, we provide model LPA Subscription Facility language, examine some of the most important LPA provisions that lenders may require and discuss certain obstacles that may arise depending on the language included in LPAs. The first step in determining if a subscription credit facility, often called a capital call facility (a “Subscription Facility”), is a viable option for a private equity or similar investment fund (a “Fund”) is to diligence the limited partnership agreement or other organizational document of the Fund (the “LPA”). Subscription Facility lenders usually require that specific concepts and language be included in an LPA in order to provide a Subscription Facility without additional credit support, such as investor consent letters. Below, we provide model LPA Subscription Facility language, examine some of the most important LPA provisions that lenders may require and discuss certain obstacles that may arise depending on the language included in LPAs.
Subscription Facility Provisions and Model Language
An ideal LPA from a Subscription Facility perspective will include the following1:
- Explicitly permit the incurrence of indebtedness by the Fund in connection with a Subscription Facility as a borrower and/or guarantor.
- Specifically contemplate a Subscription Facility and the related pledge of collateral and corresponding acknowledgments from the Fund’s limited partners (the “Investors”) of the Fund’s pledge to a lender of...