Impact of Rising NAV Loans on the Sub-line Market

NAV financing, a financial tool used by private equity (PE) funds, has seen a significant surge in popularity over the past two years. This increase can be attributed to a growing need for alternative methods to generate distributions, especially when traditional exit options are limited.

Traditionally, NAV loans to PE funds were infrequent and were typically utilized after the investment period. This made it uncommon for a fund to simultaneously have both a sub-line and a NAV line; however, the landscape has evolved dramatically, with more sub-lines extending beyond the investment period and GPs tapping into NAV facilities earlier, the overlap between these two financing options has become more frequent.

In this tought leadership paper NLC team aims to highlight the potential risks and mitigants that sub-line lenders should consider when thinking about situations where a NAV line can be outstanding at the same time as a sub-line.

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