Private Equity GP and Employee Co-Investment Credit Facilities, Management Lines of Credit

Due Diligence, Structuring and Documentation; Role of Sponsor, Administrative Issues

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


Conducted on Wednesday, June 10, 2020

Recorded event now available

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Program Materials

The CLE webinar will outline the key considerations in structuring management lines of credit, general partner (GP) financing, and employee co-investment facilities within private equity funds. The panel will discuss collateral security packages, fund obligations, administrative concerns, common points of lender diligence, and the impact that each of these types of transactions may have on a fund's subscription facility.

Description

As the subscription facility market has grown, fund sponsors are seeking other means of liquidity for their businesses and their investment professionals, and lenders are seeking to expand their product offerings to the sponsor. These products include working capital facilities secured by management fee income, co-investment lines of credit for employees to finance their fund interests, and GP facilities that finance GP obligations to fund capital contributions.

A management line of credit often takes the form of a "revolver" that provides liquidity to the fund manager between quarterly fees. Collateral typically includes the management fees collected and the depository bank accounts of such fees. In its due diligence, counsel must review each management agreement to understand how fees are calculated, when they are paid and the assets under management, and identify any management entity that should be joined as a credit party.

Employee co-investment facilities are typically arranged and managed by the fund sponsor on behalf of participating employees. These facilities can require a significant amount of time and expense for the sponsor. The lender must conduct due diligence to assess the creditworthiness of each borrower, and counsel must document relationships between the lender, sponsor employees, fund, GP, and any other applicable sponsor entities, each of which has distinct interests.

In a GP financing, the lender may require that the GP grant a lien on its interest in the underlying fund. Most fund agreements prohibit the fund's GP from "transferring" its general partnership interest. To solve this issue, the limited partnership agreement may be amended to bifurcate the GP's interest into a general partnership interest and a limited partnership interest. Care must be taken to avoid any conflict of interest with the fund when negotiating pricing and other terms of a partner loan program.

Listen as our authoritative panel discusses the structuring and documentation of GP and employee co-investment credit facilities and management lines of credit and the issues associated with each.

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Outline

  1. The impetus behind co-investment credit facilities for the sponsor and lender
  2. Management line of credit
    1. Collateral: points of contention
    2. Due diligence of manager and management agreement(s)
    3. Deal terms
  3. Employee co-investment facilities
    1. Role of sponsor
    2. Due diligence of individual borrowers
    3. Employee departures and other administrative issues
    4. Documentation
  4. GP financing
    1. Issues associated with the pledge of partnership interest: bifurcation into GP and LP interests
    2. Ensuring continued compliance with fund agreement and fund credit facilities
    3. Potential conflicts of interest

Benefits

The panel will review these and other relevant issues:

  • What are the key deal terms and points of contention in negotiating management lines of credit?
  • What are the preferred alternatives for structuring employee co-investment facilities?
  • How should a sponsor handle the departure of a key employee who is a party to a credit facility? What should the documents say?
  • What are the benefits of bifurcating the GP's interest into a general partnership and limited partnership interest? Is it necessary?

Faculty

Grishman, Alexander
Alexander T. Grishman

Partner
Haynes and Boone

Mr. Grishman focuses his practice on commercial and corporate finance transactions, including the representation of...  |  Read More

Low, Deborah
Deborah P. Low

Partner
Haynes and Boone

Ms. Low's background is in representing foreign and domestic institutional lenders in various forms of secured and...  |  Read More

McGinnis, Ellen
Ellen Gibson McGinnis

Partner
Haynes and Boone

Ms. McGinnis is recognized for her critical thinking in structuring, and practical advice in execution of, financing...  |  Read More

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