Philippa Kent

Was the supply/demand imbalance some insist exists now a pre-existing condition? And what does the future look like for the sub line market?

It’s gotten harder to find a syndicate for new, large transactions. And some banks are trying to sell down existing pre-covid exposures, in some cases to make room for new loans at new, higher prices.

Even some blue-chip sponsors have been rejected by relationship lenders. This has forced them to branch out, sometimes only to be rebuffed by banks dealing with their own limits on their ability – and appetite – to lend.

NAV covenants and capital call minimums are increasingly being used in subscription credit line deal documents, say market participants. Even recourse to assets may be on the table.

The traditional collateral for subscription credit lines, LPs' uncalled capital, has performed strikingly well, so far. But some lenders are re-evaluating the risk of these loans, and there is an increased focus on whether LPs have the incentive to meet capital calls for some funds.

Major lenders in subscription credit facilities reined in new lending shortly after the crisis began in March, focusing on existing clients and facing various constraints. Smaller banks stepped in to pick up new business they might otherwise not have been able to compete for.

Everyone in the subscription credit facility market is ‘busy’, but it is far from business as usual. Industry players wonder what the future of the sector looks like, and reveal critical changes that may suggest a new, if still evolving, normal for the market.

Aberdeen Standard Investments, which participates in sub line transactions, is seeing a surge in dealflow and banks building out syndication abilities.

Most first quarter valuations are already finalized, but a study from fund administrator Gen II Fund Services gives some insight into how fund managers expected the pandemic to affect their valuations as they worked through them in April.

GPs are seeking fund term amendment requests to either add the ability to use fund-level leverage in general, or to expand their ability to put debt on the fund.