Macfarlanes were proud to again sponsor the Annual European Fund Finance Symposium in London this week, now in its seventh iteration, and providing as much food for thought as ever.
The “buoyant” NAV facility space was a focus for many of the sessions, with many participants citing the view that these types of facilities proved their worth during the pandemic, occasioning an influx of new lenders and innovations. This ties in with funds continuing to hold assets for longer, either from necessity in the current climate, or as a deliberate strategy to optimise portfolio value. Despite the complexity and situation specific features of these facilities, some common features emerged, with LTV covenants, facility size being linked to NAV, and cash sweeps either from the start of the facility or kicking in at certain LTVs being common denominators. Common characteristics of ABL were also mentioned as sometimes featuring in this area.
A usefully technical session focused on possible concerns and documentary provisions for borrower protections in the event of defaulting lenders, and after the events of March this year, it was clear throughout the day that this was on many attendees’ minds. More practical issues, such as how best to safeguard against not being able to call capital if secured bank accounts are held at a defaulting lender, were discussed, with the consensus being that many funds are looking to build relationships with more than one financial institution with the aim of having options to transfer accounts more quickly without AML/KYC delays should this happen.
Rated debt was another focal point, with new market entrants such as insurance funds driving the demand for opportunities to participate in this. Collateralised fund obligations and rated feeders continued to be discussed in the session on innovative structures, with other panellists reporting seeing both more established structures such as umbrella and hybrid subline/NAV solutions, as well as equity commitment letters and preferred equity/ NAV hybrid facilities. Lenders’ rating requirements as well as credit risk transfer and mitigation techniques (such as SRT and unfunded guarantees) had a dedicated session this year reflecting the significant growth in this area.
Despite an unclear economic forecast, there was a sense of optimism at the conference in the continued adaptability of the sector, with several presenters anticipating a move to an even bigger venue next year – we look forward to another year of innovation in this area.