Subscription credit facilities, commonly referred to as “sub-lines” or “capital call facilities,” are a cornerstone of private equity finance. These facilities are secured by a bespoke collateral package that protects lenders in the event of default. Because the collateral structure directly impacts the fund’s borrowing capacity via a borrowing base derivative of the facility’s collateral structure, an understanding of the collateral framework is essential to grasp how these facilities operate.

What Defines a Subscription Credit Facility?

A subscription credit facility is, at its core, a loan to a private equity fund (the Fund), underwritten primarily on the strength of the investors’ capital commitments (Capital Commitments).¹ These commitments are contractual obligations for investors to contribute capital to the Fund when requested. Unlike immediate capital contributions, investors commit funds that are drawn down gradually through capital calls, aligning with the Fund’s investment needs. This staggered approach allows investors to keep their capital invested elsewhere or readily available until required by the Fund, thereby optimizing efficiency. By reducing idle capital while ensuring the Fund has access to resources when necessary, this structure reflects the operational and financial efficiency central to private equity investing.
The collateral for these facilities consists of several key components:

• Capital Call Rights: The Fund, through its general partner (GP), pledges the contractual right to issue capital calls to investors for their uncalled Capital Commitments. This pledge enables lenders to step into the Fund and/or its GP’s shoes and issue capital calls if the Fund defaults on the credit facility. This right ensures that the lender can directly access uncalled Capital Commitments without the need to liquidate other assets of the Fund, which might be illiquid, operationally tied up, or pledged as collateral to another lender under a different financing.
• Capital Contributions: Beyond the...