Subscription Legal Updates
Foundational Legal Updates
All Subscription Legal Updates
“2L, or Not 2L, That Is the Question”: Leading the Charge of Second Lien Financings in the European and Asian Fund Finance Markets
Documentation and terms in the fund finance markets have evolved differently in the United States, Europe and Asia based on various factors particular to each market, with each market having its own strengths, innovation and trends.
The Growth of ESG in Fund Finance and Other Financial Products in the United States
“[C]limate risk is investment risk … And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate...
The Use of Preferred Equity in Fund Finance
The current “higher for longer” interest rate environment has had a range of consequences for fund finance participants, including the increased focus by private equity sponsors and investors alike on...
Subscription Credit Facilities: A Comparison of Borrowing Base Structures
Subscription credit facilities, which are lines of credit in favor of private equity and similar investment funds primarily secured by the capital commitments of the fund’s investors, are most commonly structured using a borrowing base structure similar to other types of asset-backed loans.
Model LPA Provisions for Subscription Credit Facilities
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.
Investor Pre-Funding Rights in Subscription Credit Facilities
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.
Statutory Protections against the Unauthorized Release of Capital Commitments in a Subscription Credit Facility
The market for subscription-backed credit facilities, also known as “capital call” or “capital commitment” facilities (“Subscription Facilities”), was recently unsettled by reports that an international private equity fund had allegedly released its investors’ capital commitment obligations in violation of covenants under its Subscription Facility, potentially leaving the Subscription Facility lender exposed without sufficient collateral coverage with respect to the loan amounts outstanding.
Enforcement of Forms of Credit Support in Fund Finance
Private investment funds (“Funds”) employ a variety of financing structures to improve liquidity and/or obtain leverage, and lenders similarly rely on a variety of collateral and credit support packages for repayment in connection therewith.
Most Favored Nations Clauses: Potential Impact on Subscription-Backed Credit Facilities
The terms of the business arrangement between a private equity fund (a “Fund”) and an investor (an “Investor”) are generally contained in the constituent documents of the Fund, often a limited partnership agreement (an “LPA”), which sets forth the rights and obligations of the general partner and each Investor.
The Advantages of Subscription Credit Facilities
The market for subscription-backed credit facilities, also known as “capital call” or “capital commitment” facilities (“Subscription Facilities”), continues to grow rapidly, expanding into a broader range of Funds,1 with constantly evolving features and mechanics.