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Wednesday: The direction of travel for credit line use

GPs are being pulled in different directions over the use of subscription credit facilities; we gathered four experts to plot the way forward.

If you are interested in reading insights from four experts on subscription credit facilities, check out our roundtable discussion here. In a hurry? Here are the headlines and soundbites.

On tenor…

Says Citi Private Bank’s head of financial sponsors: “In our portfolio, which consists of roughly 400 funds, if an LPA does limit the tenor of an advance, the most common limiter is 12 months, followed by six months, while three or nine months are the outliers. A very significant proportion, I’d say close to half of the funds, have no restrictions at all.”

On UBTI…

Triggering UBTI is, for some firms, the main reason to clear the facility sooner rather than later. Firms are still feeling their way in terms of what length of time will trigger UBTI. Says Saw Mill Capital CFO Blinn Cirella: “As we become more comfortable with using the credit line and fully understanding the UBTI ‘triggers’, we have held the line out past 90 days in some cases. It still makes me a little nervous, as the rules surrounding UBTI are complicated, so I always double-check with our tax advisor to be sure.”

On LP demands for unlevered data…

GPs are going to have to work out how to present performance data with the effect of the facility stripped out. Says Blue Wolf CFO Josh Cherry-Seto: “It is not such a simple exercise and I don’t think, if calculated honestly, the results would be favorable.”

On who gets credit…

First-time funds tend to have a lot of non-institutional limited partners, which “can make it more difficult to secure a facility initially until a track record is established,” says Alter Domus managing director Timothy Ruxton.

Speaking of credit facilities, we are currently working on a list of prominent lenders. Who do you use? Please let philippa.k@peimedia.com know.

New(ish) firm alert: Butterfly Equity has closed its debut fund on $520 million to invest in the food sector, according to sister publication Buyouts. The firm has around $863 million in AUM if you factor in co-investment capital.

Email prepared by toby.m@peimedia.com