The structure of a NAV loan agreement is centered around several core financial and legal components that define the borrowing capacity and risk profile of the facility.
Key terms typically included in these agreements are:
- Borrowing Base: This is the primary component of the facility, derived from the aggregate net asset value (NAV) of the fund’s portfolio companies. It is periodically revalued based on market conditions and the financial performance of the underlying assets.
- Advance Rate: Lenders apply this percentage to the borrowing base to determine the maximum funds available. For general purposes, rates range from 10% to 20%, though follow-on acquisition facilities may see rates between 20% and 30%.
- Interest Mechanics: These are typically structured as floating rates, tied to a benchmark rate plus a specified margin that reflects the risk profile of the portfolio.
- Covenant Package: Agreements include financial guardrails such as Loan-to-Value (LTV) ratios, minimum diversification requirements, and concentration limits to protect the lender.
- Cross-Collateralization and Defaults: Provisions that may link multiple portfolio assets. Expert guidance suggests negotiating these triggers carefully to prevent a default in one holding from impacting the entire fund.
- Tenor: NAV facilities are generally longer-dated than subscription lines, with typical terms lasting between 3 and 5 years.
Related FAQs
-
How do I Improve my Supply Chain Management Skills?
Read More »: How do I Improve my Supply Chain Management Skills?Improving your supply chain management (SCM) skills involves a combination of formal education, professional certification, and the development of specialized technical and cross-functional competencies. According to the guide, you can enhance your SCM expertise through the following areas: Professional Certifications:…
-
How do Continuation Funds Provide Liquidity to Lps?
Read More »: How do Continuation Funds Provide Liquidity to Lps?Continuation funds provide liquidity to limited partners (LPs) by acting as GP-led secondary transactions. In these structures, a general partner (GP) establishes a new fund vehicle to hold assets from an existing fund that is approaching the end of its…
-
What are the Benefits of Gp-led Secondary Transactions?
Read More »: What are the Benefits of Gp-led Secondary Transactions?GP-led secondary transactions, primarily executed through private equity continuation funds, offer strategic advantages for both General Partners (GPs) and Limited Partners (LPs). These transactions allow for extended asset management and flexible liquidity solutions. Benefits for General Partners include: Benefits for…
-
How do Private Equity Continuation Funds Work?
Read More »: How do Private Equity Continuation Funds Work?Private equity continuation funds, also known as GP-led secondary transactions, are financial vehicles created by a general partner (GP) to hold portfolio assets beyond the term of an existing fund. These structures allow GPs to extend their management of high-performing…
-
Why are Continuation Vehicles Trending in 2026?
Read More »: Why are Continuation Vehicles Trending in 2026?In 2026, private equity continuation funds have emerged as a cornerstone of liquidity solutions due to several interrelated market and regulatory factors: Related FAQs