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ARTICLE · 06 JANUARY 2023

Subscription Credit Facilities: Concentration Limits

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It is important to note that the order of application of concentration limits and advance rates can significantly impact the overall borrowing base under the facility.

United StatesFinance and Banking
Kiel Bowen
Kiel Bowen
Michael D. Kwasigroch
Michael D. Kwasigroch
Andi M. Wilt
Andi M. Wilt
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In a subscription credit facility, the borrowing base is typically calculated by applying reductions, commonly referred to as concentration limits, to the uncalled capital commitment of each eligible investor (i.e. an investor whose uncalled capital commitments are included in the calculation of the borrowing base) and then multiplying the aggregate uncalled capital commitments (as reduced by concentration limits) of each eligible investor by the applicable advance rate. Concentration limits are included in the calculation of the borrowing base as a way for a lender to diversify its risk by capping the amount of exposure to a particular investor or group of investors it is willing to lend against.

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