Credit Support in Fund Finance: Common Forms of Credit Support in the Fund Finance Market and Enforcement Thereof

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, November 1, 2018

Recorded event now available

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Program Materials

This CLE webinar will examine three types of credit support packages that lenders may rely upon for repayment when lending to a private investment fund (Fund). The panel will discuss the credit support features of unfunded equity capital commitments of limited partners (capital commitments), a guaranty and an equity commitment letter (ECL), and how they fit into the private investment fund financing structure.

Description

In the fund finance market, there are a variety of collateral and credit support packages that lenders rely upon for repayment; they include capital commitments, a guaranty, and an ECL. These forms of credit support and financing structures are utilized by Funds to improve liquidity and/or obtain leverage. The types of credit support used by Funds and lenders share much in common with traditional lending facilities and rely heavily on tried and true lending instruments. Lender and fund counsel should have a thorough understanding of each and how they fit into the private investment fund financing structure.

Capital commitments can be used as credit support in facilities that are not a standard subscription backed credit facility, whereby the unfunded Capital Commitments may be viewed by a lender as a potential source of repayment rather than as a direct part of the collateral. Guaranties have wide applications in the fund finance market and the use of a Guaranty may be preferable in a scenario where a portfolio company incurs debt but does not itself have the ability to call upon the unfunded Capital Commitments of the parent Fund. Use of an ECL may be more expedient or efficient in some instances than arranging for other types of credit support and provide a potentially significant credit enhancement. Enforcement of each type of credit support will require a thorough understanding of its unique features.

Listen as our authoritative panel provides practice tips for documenting and structuring credit support in fund finance transactions. The panel will discuss the variations on each type of credit support, and the pros and cons of each in different financing scenarios.

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Outline

  1. Forms of Credit Support in Fund Finance
    1. Unfunded capital commitments
    2. Guaranties
    3. Equity commitment letters
    4. Comparing Capital Commitments, Guaranties and ECLs
  2. Enforcement of Credit Support in Fund Finance
    1. Unfunded capital commitments
    2. Guaranties
    3. Equity commitment letters
    4. Comparing Capital Commitments, Guaranties and ECLs

Benefits

The panel will review these and other relevant issues:

  • How can capital commitments be used as credit support as opposed to the more common use as collateral in connection with a subscription backed credit facility?
  • What are the differences between a guaranty and an ECL?
  • If necessary, how does the lender enforce capital commitments, guaranties and ECLs to repay a credit facility?

Faculty

Dempsey, Mark
Mark C. Dempsey

Partner
Mayer Brown

Mr. Dempsey is a partner in Mayer Brown's Banking & Finance and Fund Formation & Investment Management...  |  Read More

Rosaluk, Jonathan
Jonathan R. Rosaluk

Atty
Mayer Brown

Mr. Rosaluk is a member of the Banking & Finance practice in Mayer Brown’s Chicago office. He focuses his...  |  Read More

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