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Secondary Credit Facilities for Private Equity and Hedge Funds: Financing LP Interests for Better Returns, Liquidity

Negotiating Eligible Investments, Advance Rates, Borrower Base and Financial Covenants; Alternative Deal Structures

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

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Conducted on Tuesday, August 8, 2017

Recorded event now available

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This CLE course will enable finance counsel to structure secondary credit facilities secured by limited partnership (LP) interests and related assets in private equity and hedge funds. The panel will discuss alternative deal structures, the deal terms related to each, and pitfalls to avoid.


Private equity sponsors are increasingly entering into secondary credit facilities secured by LP interests and other assets, to amplify returns and further monetize the investments in their portfolios. Similarly, hedge fund managers continue to use leverage secured by underlying LP interests to boost returns, and to assist with investor subscription and redemption cash management issues.

Secondary credit facilities are often structured to avoid violating certain restrictions on pledges or transfers of LP interests or to simply the transaction. A single purpose vehicle might be established to hold the LP interests and then pledge them to the lender as security for the loan.

Alternatively, the fund might transfer the LP interests into a securities account held by a custodian who functions as an intermediary, with the lender perfecting its security interest under Article 8 of the UCC and entitled to take control of the securities under an account control agreement.

Counsel needs an understanding of both underwriting and legal considerations to negotiate deal terms common to these facilities. These include the nature and types of LP interests and other collateral assets that may qualify as “eligible investments,” the advance rate the lender will charge for each type of collateral, the calculation of the borrower base, and financial covenants such as LTV or NAV limitations that may trigger an event of default.

Listen as our authoritative panel discusses the structural approaches to leveraging the value of LP interests in private equity and hedge funds. The panel will also examine the key negotiated provisions in each type of transaction.



  1. Secondary Credit Facilities - advantages, restrictions
  2. Approaches to structuring
    1. Straight pledge of LP interests (probably not practicable)
    2. Special purpose vehicle as holder of LP interests and borrower
    3. Use of securities account and account control agreement; UCC perfection
  3. Key financing terms
    1. Eligible investments
    2. Advance rates
    3. Borrowing base
    4. Financial covenants and related events of default
    5. Other


The panel will review these and other key issues:

  • What are the advantages and potential problems with leveraging LP interests and assets?
  • When is a SPV structure, as opposed to a UCC pledge with an account control agreement, appropriate for a PE fund?
  • What are the key deal terms to consider in a secondary credit facility?
  • How might deal terms vary between private equity and hedge funds?


Belsley, Michael
Michael D. Belsley

Kirkland & Ellis

Mr. Belsley's practice involves structuring, negotiating and documenting complex business transactions, including...  |  Read More

Stephenson, Leon
Leon Stephenson

Partner, European Head of Funds Finance
Reed Smith

Mr. Stephenson is a member of the Financial Industry Group and Head of Funds Financing in London. He and his team work...  |  Read More

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