Fund Financing And Taking Security Over Capital Call Rights

In recent years, the subscription facility market has increased significantly in size as more private equity funds use these lines of credit attracted by the flexibility and liquidity that such facilities can offer. Lenders are also moving into the space attracted by the product’s strong credit profile and historically low delinquency rates.

The key feature of a subscription facility is the security package. It will typically include security over the unfunded capital commitments of the fund’s investors including: (i) the right to make capital calls on investors in respect of their unfunded capital commitments together with rights to enforce payments thereof, and (ii) the right to receive the proceeds of such capital calls. It will generally also include security over the bank account into which investors are required to deposit their capital contributions. The Cayman Islands exempted limited partnership (“ELP”) is a common vehicle used for structuring private equity