Nuances and Trends in Negotiating Loan‑to‑Value Ratios in NAV Facilities (Part One of Two)

Sponsors are well-versed in the nuances of negotiating subscription facilities for their PE funds, including how different types of investors can impact a fund’s borrowing base. The same cannot be said for net asset value (NAV) facilities, given that they are relatively new and complex financing structures. In particular, lenders and borrowers need to collaborate – and negotiate – extensively to settle on the collateral base for the NAV facility, as well as to determine appropriate loan-to-value (LTV) ratios and triggers throughout the financing documents. Those are among the issues addressed in a recent program sponsored by Strafford CLE Webinars featuring Haynes and Boone partners LeAnn L. Chen and Craig S. Unterberg, as well as Fried Frank partners Adam D. Summers and Ariel Zell. This first article in a two-part series explores where NAV facilities fit into a fund’s lifecycle, the development of hybrid facilities, the importance of the LTV ratio, how the LTV is calculated and various LTV triggers that commonly arise. The second article will examine several key negotiating points for NAV facilities, including collateral releases, due diligence processes and transfer restrictions. For additional commentary from Haynes and Boone attorneys, see “ILPA Updates Its DDQ to Cover Newly Relevant Topics, but GPs Wonder Whether LPs Will Embrace It” (Dec. 21, 2021); and “Can Misused Email Accounts of Sponsor‑Appointed Directors on Portfolio Company Boards Jeopardize Attorney‑Client Privilege?” (Jun. 22, 2021).

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