NAV Facility for Private Funds: Borrowing Against Portfolio Value

A NAV facility for a private fund is a loan secured by the value of the fund's investments (or by equity in a holding company that owns them), not by uncalled LP commitments. It shows up later in the fund's life, when dry powder is thin and NAV is the asset a lender can underwrite. A subscription line is the opposite collateral: unfunded commitments. SEC staff define those subscription facilities as indebtedness "secured by the unfunded capital commitments of the private fund's investors." (SEC, Marketing Compliance FAQ, n.17, posted Feb. 6, 2024) A NAV facility is the product you have when that sentence no longer describes the security package.

This is general information, not investment, tax, or legal advice. This page states no interest rates, coupons, advance rates, LTVs, or "typical" sizes. Those terms are negotiated and are not sourced here.

How a NAV facility for a private fund works

The lender's recovery thesis is portfolio value. In a stripped-down structure:

• The fund (or a wholly owned Holdco) grants security over equity interests in portfolio companies, over the bank account that receives exit proceeds, or over both.

• Covenants speak to loan-to-value against a defined NAV, concentration, transfer restrictions, and what happens if a mark moves.

• Proceeds come into the fund or Holdco and are applied as the facility agreement and the LPA allow: follow-on capital, liquidity at a remaining portfolio company, expenses, or a distribution.

Because the collateral is the portfolio, the lender cares about marks, information rights, and whether the fund can actually deliver the shares or the proceeds. Company-level ROFR, consent, and 144A/transfer legends that do not bother a subscription lender become the diligence. Cross-collateralizing several holdings is common in the documents; this page does not assign a market percentage to that structure.

None of that is a subscription line with a new name. If the only security is the right to call undrawn commitments, it is still a subscription line even if someone in the process called it "NAV."

Subscription line versus NAV facility

The subscription-line mechanics, including the Marketing Rule FAQ on IRR with and without the facility, are subscription line for private funds. Read that page for call-right collateral. Stay here for portfolio-value collateral.

Why a GP draws a NAV facility

Uses GPs actually put in term sheets — not ranked, not sized:

Support the existing book. A follow-on, a pro-rata, or a working-capital need at a company when the fund is out of uncalled capital, or when calling the last dry powder would strand the GP with no reserve. The facility is then a substitute for a recycling provision or a successor fund.

Time an exit. Proceeds will come; they have not come yet. The facility bridges payroll at a portco, a litigation reserve, or a tax distribution. The take-out is the exit, not an LP call.

Make a distribution without selling. This is the use LPs argue about. The fund borrows against NAV and distributes cash. DPI goes up. TVPI may not. Debt sits on the remaining assets. Whether that is "liquidity for LPs" or "pulling forward a mark" depends on the LPA, the remaining duration, and who is in the waterfall. A distribution that trips carry on an American waterfall while the loan is still out is a conflict the LPAC should see in writing, not in a footnote.

Avoid or delay a continuation process. Selling the remaining book into a GP-led continuation vehicle is a different liquidity tool: a new vehicle, a fairness process, a roll/sell election. A NAV facility keeps the same fund and the same LPs and puts a creditor in front of them. One is not a substitute for the other. If the GP is choosing between a continuation and a NAV draw, that choice is the diligence.

Deal-by-deal SPVs almost never have a NAV facility. There is one asset, often unmarketable, and no diversified book for a lender to mark. A single-asset Holdco loan at the company is not a fund NAV facility.

What LPs diligence (without invented ratios)

LPs cannot diligence a coupon this page will not print. They can diligence process.

Permission. Does the LPA's borrowing clause cover asset-level or Holdco-level debt, or only subscription facilities? Older LPAs were drafted for call-right pledges. A GP who reads "the fund may borrow" as "the fund may pledge the portfolio" should be able to show the clause. If the clause is silent or ambiguous, LPAC consent before signing is the conservative path. This page does not declare that consent is legally required in every Delaware partnership; it is the path that matches how the conflict presents.

Use of proceeds. Support-the-book versus distribute-to-LPs are different conflicts. A distribution use should be explicit in the consent package: amount, remaining term, how the loan ranks against the waterfall, and what happens to carry.

Effect on reported metrics. Borrowing to distribute raises DPI and can change IRR; the asset is still there, now encumbered, which is an RVPI and TVPI issue. Definitions are IRR, MOIC, DPI, TVPI, RVPI. Ask for performance and NAV with the facility drawn and as if it were not. The Marketing Rule FAQ is written for subscription facilities and Gross/Net IRR methodology; the same comparison instinct applies when the debt is against NAV rather than against calls.

Who is ahead of the LPs. A lender with a pledge of Holdco equity is structurally senior to the LP on that asset. Cross-collateralization can make a problem at Company A a problem at Company B.

Marks. The facility will define NAV. That definition may not match the GP's quarterly fair value. Basis differences (stale marks, excluded assets, haircuts the agreement applies) are the real borrowing base, not a percentage quoted at a conference.

Term and take-out. What retires the loan: an exit, a refinancing, a call of leftover commitments, or a maturity that forces a sale? A maturity inside the fund's remaining life is a forced-liquidity clause by another name.

Conflicts. Fee income to an affiliate, a GP who is also a lender, or a continuation process running in parallel with a NAV marketing process. Those go to the LPAC with the facility term sheet, not after funding.

Continuation vehicles are not NAV facilities

A continuation vehicle is a new partnership (or a recap of the old one) that buys one or more remaining assets from the fund. LPs elect to roll or sell. A third-party or GP-affiliated buyer sets a price. The old fund distributes cash to selling LPs and, often, crystallizes carry.

A NAV facility leaves the fund in place. LPs do not get a roll/sell election. They get a creditor. If the GP's actual goal is a reset of term and fee on a prized remaining asset, a continuation is the tool that puts that question to LPs. If the goal is a temporary cash need against a book the GP still wants to hold in the same vehicle, a NAV facility is the tool that does not require a new partnership. Mixing the two in a pitch — "NAV-like liquidity with continuation economics" — is how LPs lose the thread.

What to put in a new LPA if you might use one

Draft the borrowing section as two products, not one "indebtedness" paragraph:

• Subscription facilities: pledge of uncalled commitments, use of proceeds, a cap tied to remaining commitments, and reporting of IRR with and without the line.

• NAV / asset-backed facilities: a definition, a cap tied to NAV as defined, permitted uses (and whether distributions are in or out), LPAC consent triggers, and reporting of outstanding debt, collateral, and NAV with and without the facility.

Caps, tenors, and pricing belong in the negotiated number, not in a blog post. If those numbers cannot be sourced to a primary document the LP can read, they should not be implied as market.

A NAV facility is borrowing against remaining value. Treat it as such in the LPA, in the LPAC pack, and in the metrics. If the GP cannot explain the use of proceeds without a coupon, the facility is not ready to sign.