Net Asset Value Financing and Private Equity
171 University of Pennsylvania Law Review Online 45 (2024)
22 Pages Posted: 4 Jun 2024
Date Written: June 02, 2024
Abstract
Although not yet explored in the legal scholarship, net asset value or “NAV” financing—debt generally taken out at the fund level and secured against the net asset value of the fund’s portfolio assets (or a subset thereof)—has taken off in the $8 trillion dollar3 private equity realm. This Essay argues that the growth of this market is indicative of an important but understudied trend by legal scholars that is changing the private equity landscape: the increasing use of debt finance by private equity funds themselves. It also suggests that while this leverage expansion has benefits, it also has potential drawbacks such as increased agency costs, intercreditor conflicts, and investor friction, and it risks financial market instability which is associated with leverage on top of leverage. Publication information: Colleen M. Baker, Net Asset Value Financing and Private Equity, 171 University of Pennsylvania Law Review Online 45 (2024), https://pennlawreview.com/2024/05/24/net-asset-value-financing-and-private-equity/
Keywords: private equity, net asset value financing, nav financing, intercreditor conflicts, leverage, financial market stability, private credit
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