A difficult M&A market means private equity funds are holding portfolio companies for longer, but NAV finance could turn this into an opportunity. “NAV lending has been used in the past by GPs as a liquidity tool to distribute cash to investors but there has been quite vocal opposition to that from some among the LP community who are concerned that they would ultimately be funding the borrowing cost, and the distributions funded by such borrowing might be recallable,” says Ed Saunders, partner and co-chair of Goodwin’s Fund Finance group. Saunders goes on to say that this model of NAV finance is now less prominent than using it as a tool for portfolio enhancement, enabling managers to create more value in their portfolio companies while they await more favourable conditions for an exit. “What we now see more commonly is use of NAV facility liquidity to enhance portfolios, rather than the ‘borrow to distribute’ model.”
Please read the Private Debt Investor article for more.