Capital Allocators – Inside the Institutional Investment Industry WTT - NAV Loans: Canary or the Gold Mine?
35 snips
Oct 14, 2023 Explore the intriguing rise of NAV loans in private equity, hailed as gold mines by credit managers. Discover how private equity firms are cautiously experimenting with these financial instruments. A case study on Vista Equity Partners reveals the potential risks lurking beneath the surface. The discussion also uncovers alarming implications, suggesting that NAV loans may signal a downturn in the industry, raising red flags about misaligned interests between General Partners and Limited Partners.
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End-of-Cycle Excesses
- Financial market participants often make risky decisions at the end of a cycle.
- These decisions seem irrational in retrospect, like dot-com valuations in 2000 and structured subprime mortgage products in 2008.
NAV Loans: A New Trend
- NAV loans are a new trend in private lending where sponsors take on debt at the fund level.
- This differs from traditional borrowing, which occurs at the individual company level.
Vista and Finastra
- Vista Equity Partners took a $1 billion NAV loan to refinance its portfolio company, Finastra.
- This case study illustrates how some private equity firms use NAV loans.
