We are currently receiving many inquiries from Sponsors seeking funding to support their firm’s balance sheet, portfolio companies or to take advantage of opportunities in the market driven by COVID-19.
One potential solution that may be appropriate is net asset value (“NAV”) loans from US debt providers.
What are Net Asset Value (NAV) Loans?
NAV loans provide capital to portfolio companies by relying on the value of the Sponsor’s performing portfolio collateral.
NAV loans differ from traditional subscription facilities (capital call lines) in that they do not rely on uncalled capital; alternatively, NAV loans look to the value of the fund’s portfolio and provide companies that have equity-like needs with access to non-dilutive capital at a debt-like cost.
- NAV structures are particularly useful for funds that are near, or past, the end of their investment period.
- NAV loans are also helpful to take advantage of “opportunistic” deals that have recently emerged.
- NAV loans can accommodate a diverse variety of circumstances, and accordingly, are highly-negotiated.
How are NAV Loans structured?
Typically, NAV Loans are structured in the following manner:
- The borrower is either the Opco, Holdco, or Fund and the NAV loan is guaranteed by the Fund.
- NAV loans can be 10% – 30% of the value of the fund’s eligible assets, which are generally limited by concentration limits and diversity requirements. Valuations are conducted by the Sponsor on a quarterly basis.
- Coupons of ~ 8-12%, payable in a combination of cash and PIK interest (can be all PIK).
- No stated amortization. Maturities up to 5 years.
- Prepayment penalties in the first 12-18 months.
- No financial covenants at the portfolio company level, but negative covenants that can include limits on additional fund-level guarantees, debt, and the sale of assets outside the ordinary course of business.
You can download the NAV Summary here.
*Securities offered through SPP Capital Partners, LLC: 550 5th Ave., 12th Floor, New York, NY 10036. Member FINRA/SIPC.
If you have a current or prospective liquidity need and would like to discuss the concept of NAV loans further, please reach out at any time.
Managing Partner and Principal
Stefan has over 30 years of experience in the private market includes hundreds of transactions in North America, Asia and Europe. Prior to becoming a principal at SPP Capital, Stefan was a Vice President in the Private Placement Group at Bankers Trust Company where he was responsible for origination, structuring and pricing of private placements for the Capital Markets Group, both nationally and internationally.