Finance Partner Patricia Lynch and Asset Management Partner Morri Weinberg Discuss Subscription Credit Facilities in Law360
Remarks from finance partner Patricia Lynch and asset management partner Morri Weinberg are featured in a July 1 article published by Law360. The piece, titled “What To Know About PE Funds' Subscription Credit Facilities,” discusses how short-term loans designed to bridge the gap when funds need more capital for investment have gained traction.
“We’ve seen use of SCFs really expand dramatically over the last five to 10 years,” said Ms. Lynch. “These used to be facilities that some would use, but not all. Now, virtually all of our PE clients at least have the capacity to use a subscription line.” While not all fund managers will rely on credit to make investments, even the ones who aim not to use SCFs typically have a provision in their partnership agreement with investors stating that, if needed, a line of credit could be procured, according to Ms. Lynch. “Most of these SCFs will let a fund borrow within somewhere between a few hours' and a few days' notice,” Ms. Lynch said. “It would always be less than 10 days, which gives the fund the ability to meet the need for capital quickly.”
Mr. Weinberg discussed how the provisions related to SCFs should be negotiated early on as part of the fundraising process. “It could be done later on in the fund’s life, but you would have probably to go out and get an amendment to the fund’s limited partnership agreement which would require approval,” said Mr. Weinberg. “It’s easier to do upfront.” He added that “these days, from my perspective as a fund formation lawyer, I dare say that virtually every fund I’ve raised in the last couple of years have put a subscription facility in place shortly after organizing the fund, even if they don’t always use them.”