NAV Loans To Address COVID Challenges
HCG can provide NAV loans for portfolio companies. NAV loans provide capital to portfolio companies by relying on the value of the Sponsor’s performing portfolio collateral.
NAV loans differ from traditional subscription facilities (capital call lines) in that they do not rely on uncalled capital; alternatively, NAV loans look to the value of the fund’s portfolio and provide companies that have equity-like needs with access to non-dilutive capital at a debt-like cost.
Typically, NAV Loans are structured in the following manner:
The borrower is either the Opco, Holdco, or Fund and the NAV loan is guaranteed by the Fund.
NAV loans can be 10% – 30% of the value of the fund’s eligible assets, which are generally limited by concentration limits and diversity requirements. Valuations are conducted by the Sponsor on a quarterly basis.
Coupons of ~ 8-12%, payable in a combination of cash and PIK interest (can be all PIK).
No stated amortization. Maturities up to 5 years.
Prepayment penalties in the first 12-18 months.
No financial covenants at the portfolio company level, but negative covenants that can include limits on additional fund-level guarantees, debt, and the sale of assets outside the ordinary course of business.