Fund finance: Apropos of this month’s cover story on NAV lending, Buyouts Insider brings us this story on GPs increasingly looking to get LPA amendments allowing them to get NAV loans, or to expand their ability to put debt on the fund, with some interesting color from LPs being asked for LPA amendments to allow for the loans.
For more color on this topic, check out the “New faces come knocking” section of our cover story, which reports that, not only are PE funds looking for NAV loans, but some credit funds and even LPs are looking at the product as well.
But I’ll note that Hark Capital’s Doug Cruikshank (who is also quoted in the Buyouts story) said in “New faces come knocking” (full issue here) that he’s seen more acceptance from LPs around granting amendments in LPAs to allow for NAV loans. “LPs from what we’re seeing are particularly favorably disposed toward this type of solution now, because it provides the portfolio with not only defensive capital for liquidity but also potentially offensive capital to do tuck-ins at arguably a good time to be a buyer,” he said.
That said, he notes to Buyouts that, of course, not all LPs are favorably disposed to NAV loans. It is costly capital.
Debt buybacks: Another use of NAV loans noted in “NAV lenders to the rescue” is buying back portfolio company debt, which has been trading, as you can imagine, at severe lows. Crestline’s Dave Philipp has done several deals “extinguishing portfolio company debt with equity or buying the debt itself or issuing new debt.”
Kirkland & Ellis’ Jocelyn Hirsch added that such activity was at the top of her clients’ priority lists: “Even PE shops that haven’t looked at purchasing debt as an asset class before are getting interested. Some firms are setting up special situations funds or annex funds on an emergency basis to enable them to purchase debt.”
Email prepared by Graham Bippart