Umbrella Credit Facilities: Benefits and Drawbacks of Unique Financing Structure (Part One of Two)

Umbrella credit facilities are a byproduct of the ongoing collaboration between PE sponsors and lenders to diversify the fund finance offerings in the market. Structured as a single credit facility with multiple borrowers, an umbrella credit facility can be smoother to negotiate versus having multiple credit agreements; easier to oversee as part of a fund platform; and more cost effective in terms of the associated fees. Umbrella facilities also can prove prohibitive, however, if a sponsor’s multiple fund borrowers have different structures and needs. To examine the unique features of umbrella facilities and the appeal they hold for sponsors, Strafford CLE Webinars recently hosted a program featuring Ramya S. Tiller, partner at Debevoise & Plimpton; Thomas Draper, partner at Foley Hoag; and Monika Singh Sanford, partner at Haynes and Boone. This first article in a two-part series furnishes an overview of the key features of umbrella credit facilities and who uses them, in addition to discussing the attractions and drawbacks of the facilities. The second article will examine some of the specific challenges that may arise for sponsors, fund borrowers and lenders involved with the facilities. For further commentary from Draper, see our two-part series on trends in the use of subscription credit facilities: “Advantages for PE Investors and Sponsors Have Led to Adoption by Some Hedge Funds and Credit Funds” (Jan. 24, 2019); and “Structuring Considerations Negotiated With Lenders and Important LPA and Side Letter Provisions” (Feb. 7, 2019).

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