NAV facilities over listed and unlisted equities: two worlds collided

The inclusion of publicly listed assets within the borrowing base of a NAV financing can enhance the lenders’ position by giving them recourse to assets with greater liquidity and price transparency. However, it brings with it the need to understand the legal, regulatory and commercial issues specific to listed securities that wouldn’t otherwise be relevant in most NAV financings.

Much has been written in recent years about the growing use by private equity sponsors, large venture capital firms and other investment funds of Net Asset Value (NAV) financings. These credit facilities, whose recourse is (directly or indirectly) to the equity interests in a fund’s portfolio of investments, allow managers to enhance the borrowing capacities of their more mature vehicles whilst mitigating lender risks through diversification. The borrowing base for these facilities has typically consisted of interests in private companies but we have increasingly seen clients looking to structure financings over a mixed portfolio of both privately held and publicly listed equity interests. These structures are driven by funds seeking to leverage their full asset base whilst providing lenders with recourse to assets which are more liquid as a counterbalance to the more typical private equity interests.

In this article, we explore some of the key structuring considerations that arise on these transactions where the typical NAV financing meets the margin lending world.