Introduction

A power of attorney (“POA”) is a written agreement wherein an individual or organizational person (the “principal”) provides advance authority to another party (the “agent”) to make certain decisions, to execute certain documents or to act on the principal’s behalf, generally or in certain circumstances. POAs can take the form of stand-alone documents or can be included within other documents (e.g., within a security agreement for a secured lending transaction). Grants of POAs are commonly included in security documents for secured lending transactions to enable the agent to take actions (e.g., direct the disposition of proceeds within the principal’s account, execute and deposit checks) on behalf of the principal and usually spring into effect upon the occurrence of an agreed triggering event, such as an event of default under the related credit documents. While POAs are likely to be found in almost all secured lending transactions, there can be nuances related to how such POAs are used in a given transaction and/or jurisdiction. This article discusses some of the issues, considerations and concerns with the use of POAs in subscription credit facility transactions in the United States.

A subscription credit facility (a “Facility”), also frequently referred to as a capital call facility, is a loan made by a bank or other credit institution (the “Lender”) to a private equity or other type of investment vehicle (the “Fund”). The defining characteristic of such Facilities is the collateral package, which is composed of the rights to make capital calls on the unfunded commitments of the limited partners in the Fund (the “Investors”), to receive capital contributions (“Capital Contributions”) when called from time to time by the Fund’s general partner or manager (the “General Partner”) and to enforce the same, pursuant to a limited partnership agreement executed by the Investor and the...