The traditional form of such financing is a revolving subscription line facility, which “looks up” to the investors and bridges the gap between the Fund’s need for capital to make an investment and the investors’ ability to provide the capital in a timely fashion. [...] In the typical NAV structure, the only equity pledged is the equity of the borrower itself and the borrower’s interest in the top-tier investment holding companies. [...] Absent a default or event of default under the margin loan, the borrower will typically be permitted to issue buy and sell orders with respect to securities in the account, but any withdrawals from the account will be subject to the conditions specified in the margin loan agreement and will require the instructions of the lender. [...] Borrowing base As with NAV facilities, the borrowing base for a margin loan is determined by looking at the ratio of the outstanding loans to the value of the collateral on deposit in the custody account. [...] Consequently, rather than put in place more complex structures designed to create a liquid collateral instrument (for example, a preferred LP interest), which can be sold without triggering a change of control of the issuer, the lender may opt to take the pledge of the issuer shares and accept the risk of obtaining consents at the time of foreclosure or may structure the transaction with recourse.
- Pages
- 13
- Published in
- United States of America
