“Higher interest rates are making the exit markets very difficult for private equity sponsors,” said Doug Cruikshank, the founder of New York-based Hark Capital. “They need NAV loans more than ever as a bridge between the companies they have now and when they can sell them.”
Even blue-chip firms are turning to NAV loans. Blackstone Inc. late last year said in regulatory filings that some of its funds “have entered into or are expected to enter into” NAV credit facilities, as well as subscription credit lines, a more common form of fund financing.
MassMutual was an early entrant to the market among insurers. It established a direct private investments team in 2017 that provides proprietary secured loans backed by a range of assets to private capital managers and funds, a person familiar with the company said. MassMutual didn’t return calls or emails seeking comment.
SoftBank Deal
Apollo’s first big financing was a $4 billion NAV loan of sorts in December 2021 for SoftBank, secured by the $40 billion technology venture fund SoftBank Vision Fund 2. Following the SoftBank deal, Athene provided financing to other funds, including those run by Apollo as well as other money managers, regulatory filings show.
Larger managers such as Blackstone have bigger funds, and that means they need bigger loans. Some NAV financings are approaching $2 billion and thus need multiple lenders.
“No one can hold a loan for $1 billion to $2 billion” on their own, said Pierre-Antoine de Selancy, a co-founder and managing partner at London-based 17Capital.
Apollo, like bank lenders in the NAV sector, typically limits the size of its loans to no more than 10% of the assets pledged as collateral. This not only protects against losses, but also helps the NAV loans obtain investment-grade credit ratings, a vital step for banks to syndicate the debt to insurers.
The influx of insurer capital is prompting lenders to get credit ratings for NAV loans they plan to syndicate. The credit ratings not only give insurers insight into the riskiness of a NAV loan but also reduce the amount of regulatory capital they must set aside for the debt, said Gopal Narsimhamurthy, head of the fund ratings group at KBRA, the largest rater of NAV loans.
This article was provided by Bloomberg News.