Originally published October 22, 2019; updated July 11, 2024.

Introduction

Subscription-backed credit facilities (also known as “capital call” or “capital commitment” facilities, and each a “Subscription Facility”) have served as the cornerstone of the fund finance market for the past 20 years. Loan availability under a Subscription Facility is subject to a borrowing base, which is typically tied to the remaining amount of the pledged uncalled capital commitments of investors satisfying certain eligibility requirements, multiplied by an advance rate. However, in connection with the ongoing evolution of the fund finance market, we have seen a growing interest among real estate and other private credit funds (each, a “Fund”) for additional fund financing tools to leverage the value of their portfolio assets and optimize investment returns.

In order to meet the financing needs of these Funds, a growing number of banks and other credit institutions (each, a “Buyer”) are entering into financing arrangements, commonly known as repurchase agreements or securities contracts, with subsidiaries of these Funds (each, a “Seller”) whereby the Buyer provides liquidity by “purchasing” certain portfolio assets with an obligation of the Seller to “repurchase” these same assets on a specified date in the future (each a “Repurchase Facility”). In contrast to Subscription Facilities (which look “up” to capital commitments of investors to determine loan availability), Repurchase Facilities look “down” to assets beneath the Fund level. Repurchase Facilities can also be used effectively in tandem with Subscription Facilities.

Repurchase Facilities are often used to provide temporary financing of an asset until an exit strategy (like pooling into a securitization) can be pursued. In addition to Repurchase Facilities, there are other tools available to Funds for purposes of obtaining liquidity from portfolio assets, including “note on note” financings (whereby a lender provides an advance against a loan asset and in...