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Assessing and mitigating “bad acts” risk in NAV loans
Fund Finance Laws and Regulations 2023
25 April 2023
One aspect of NAV loans that lenders often focus on is the risk of "bad acts" by a borrower. For our purposes, NAV loans are loans to alternative investment entities (e.g., private equity funds, secondaries funds, hedge funds, funds of hedge funds, pension funds and family office vehicles) that are underwritten, either on a secured or unsecured basis, by the value of the borrower's investments. By "bad acts" we mean the risk that a borrower takes actions that cause or result in the underwritten investments and other assets ceasing to be owned by the borrower, or becoming subject to the claims of other creditors, in each case in contravention of the terms of the NAV loan terms.
One aspect of NAV loans that lenders often focus on is the risk of "bad acts" by a borrower. For our purposes, NAV loans are loans to alternative investment entities (e.g., private equity funds, secondaries funds, hedge funds, funds of hedge funds, pension funds and family office vehicles) that are underwritten, either on a secured or unsecured basis, by the value of the borrower's investments. By "bad acts" we mean the risk that a borrower takes actions that cause or result in the underwritten investments and other assets ceasing to be owned by the borrower, or becoming subject to the claims of other creditors, in each case in contravention of the terms of the NAV loan terms.
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