More Private Equity Managers Turning To NAV Credit Facilities

Private equity managers are turning to specialty borrowing facilities to make sure they can survive the coronavirus pandemic, the Financial Times (FT) reports, though this could pose its own new set of difficulties.

According to FT, specialist lenders have been popular as ways to provide bespoke loans, known as NAV credit facilities, based on the estimated net asset of the value of the companies owned by the fund.

Those arrangements have become more popular amid the decline of other comparable options for private equity managers to make money, with more funding strains on private equity-owned companies and uncertainty about valuations both contributing to market fluctuations and declines, FT writes.

So the pandemic has contributed to a “step change” for NAV credit facilities, according to London-based fund financing specialist 17Capital, which provided around $1 billion for private equity managers just during the past few months, FT writes.

The borrowed money can sometimes be used to pay back investors, a vital way to keep them on board to help further projects down the road, FT writes.

17Capital predicts that the trend will continue, as about 900 private equity funds worldwide have invested all their investors’ cash and are depleted.

17Capital partner Stephen Quinn said the facilities are “like any tool, once successfully used become something that can be deployed repeatedly,” according to FT.

Trade finance revenues are predicted to fall by 8 percent in 2020, with returns from cash management offers likely to fall by as much as 12 percent.

While the early pandemic saw the number of mergers and acquisitions screeching to a halt amid the global financial breakdown, the summer saw a resurgence of them, PYMNTS writes. The increase came with 36 deals over $5 billion, the total of which reached $456 billion in the quarter ending in September. Wall Street banks registered $28 billion in investment banking changes during the quarter.