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Revelle Capital

Transaction Type

NAV-Based Lending for Private Equity Funds

Fund-level financing secured against the net asset value of the portfolio. NAV lending provides PE sponsors with flexible capital for follow-on investments, distributions, and portfolio management without requiring asset-level consent or disrupting individual portfolio companies.

300+Lenders
15+Years Experience
100+Clients Served
10+Jurisdictions Covered

What Is NAV-Based Lending?

NAV-based lending (or NAV lending) is a form of fund-level financing where a private equity fund borrows against the aggregate net asset value of its portfolio of investments. Unlike traditional leveraged lending, which is underwritten against the cash flows and assets of a single operating company, NAV lending is secured against the fund's equity interests in multiple portfolio companies, providing diversified collateral across sectors, geographies, and vintages.

The product sits within a broader family of fund finance solutions that includes subscription credit facilities (secured against uncalled LP commitments) and hybrid structures. Subscription lines are typically used during the investment period to bridge capital calls, while NAV facilities are most commonly deployed later in a fund's life, when the investment period has expired and uncalled commitments are limited but the portfolio has generated significant embedded value.

NAV lending has grown rapidly in recent years, driven by several structural factors. PE sponsors face increasing pressure from limited partners to generate distributions (DPI) while retaining exposure to performing assets. Traditional exit routes - trade sales, secondary buyouts, and IPOs - may not be available or optimal for every portfolio company at every point in the cycle. NAV facilities provide a mechanism to extract liquidity from the portfolio without requiring individual asset disposals, enabling sponsors to manage their fund economics more actively.

The market for NAV lending in Europe has expanded from a niche product serving a handful of large sponsors to a mainstream financing tool used across the PE industry. Specialist NAV lenders, direct lending platforms with fund finance capabilities, and banking institutions with dedicated fund finance teams all participate in the market, with facility sizes ranging from EUR 20M for smaller mid-market funds to EUR 500M+ for large-cap platforms.

When to Use This Structure

NAV lending is most valuable in specific situations within the fund lifecycle. The following scenarios represent the core use cases where fund-level borrowing against portfolio NAV provides advantages over alternative approaches.

Mature funds (Year 6-10+) where the investment period has expired and uncalled commitments are insufficient to fund follow-on investments or bridge distributions, but the portfolio contains significant unrealised value
Generating LP distributions without forced asset sales - NAV facilities allow sponsors to pay distributions funded by portfolio leverage rather than liquidating investments at potentially suboptimal times
Funding follow-on investments in existing portfolio companies - add-on acquisitions, capex programmes, or working capital injections where the fund's remaining committed capital is limited
Bridging to exit - providing short-term liquidity while a sale process or IPO is being prepared, with the NAV facility repaid from exit proceeds
GP-led secondary transactions where the sponsor needs to provide liquidity to existing LPs while rolling into a continuation vehicle, and the NAV facility bridges the timing gap between the transaction and new capital commitments
Portfolio management situations where one or more investments require additional capital, and raising this through the existing fund structure is more efficient than seeking co-investment or establishing a separate vehicle
Providing defensive capital to portfolio companies facing unexpected challenges, where speed of deployment matters and the fund's remaining dry powder is committed elsewhere
Enhancing fund returns through modest leverage at the portfolio level, particularly in the latter stages of the fund where the portfolio has de-risked through operational improvements and partial realisations

How It Works

The NAV lending process differs materially from deal-level private credit financing. The underwriting focuses on portfolio-level diversification, valuation methodology, and GP quality rather than individual company credit analysis. Typical timelines run 6-10 weeks from initial engagement to first drawdown.

1

Portfolio Analysis and Borrowing Base Calculation

The process begins with a comprehensive analysis of the fund's portfolio - the number of investments, sector and geographic diversification, valuation methodology, holding period, and the quality and independence of the valuations. The lender calculates a borrowing base by applying advance rates to the NAV of eligible portfolio companies. Advance rates typically range from 15-30% of NAV for individual investments, with concentration limits ensuring no single investment represents more than 20-25% of the borrowing base. The aggregate facility size is constrained by the borrowing base and the overall loan-to-value (LTV) ratio, which typically runs 10-25% of gross portfolio NAV.

2

GP Due Diligence

Unlike deal-level lending, NAV facility underwriting places significant emphasis on the GP itself - its track record, investment discipline, valuation practices, and operational capabilities. The lender reviews the fund's historical performance, the consistency and conservatism of its valuation methodology, the frequency of independent valuations (quarterly is standard), and the GP's approach to portfolio management and exits. The quality and reputation of the GP is a critical credit factor because the lender relies on the GP to manage and ultimately realise the portfolio that secures the facility.

3

Legal Structuring and LP Consent

NAV facilities require careful legal structuring to ensure the lender has valid security over the fund's equity interests in its portfolio companies. This typically involves pledges of the fund's shares or interests in the holding vehicles through which it owns its portfolio companies. LP consent may be required depending on the fund's limited partnership agreement - many modern LPAs include provisions permitting fund-level borrowing up to a specified percentage of NAV, but older funds may require an LP advisory committee vote or broader LP consent. The legal structure also needs to address potential conflicts between the NAV facility and existing portfolio-company-level debt, which may restrict upstream payments or pledges.

4

Documentation and Facility Terms

The facilities agreement is structured as a revolving credit facility, allowing the fund to draw, repay, and redraw as its liquidity needs evolve. Key terms include the borrowing base formula, advance rates, concentration limits, LTV covenants, reporting requirements, and events that trigger mandatory prepayment (such as portfolio company disposals, where a portion of proceeds must be applied to reduce the facility). The lender receives quarterly portfolio valuations and has the right to request updated valuations in specific circumstances. Interest is typically payable quarterly, and the facility has a tenor of 2-4 years, shorter than deal-level term loans.

5

Drawdown and Ongoing Management

Once the facility is in place, the fund can draw against the borrowing base to fund distributions, follow-on investments, or other approved uses. The borrowing base is recalculated quarterly based on updated portfolio valuations, and the available facility amount adjusts accordingly. If portfolio valuations decline, the borrowing base reduces and the fund may be required to prepay a portion of the outstanding facility to bring it within the recalculated limit. Conversely, if valuations increase, additional drawing capacity becomes available. The GP provides quarterly compliance certificates and portfolio updates to the lender.

Typical Terms

NAV lending terms differ significantly from deal-level private credit. Pricing is lower reflecting the diversified collateral, but structural protections are more complex due to the fund-level nature of the exposure.

Loan-to-Value (LTV)
10-25% of gross NAV
Lower LTV for concentrated portfolios or less established GPs; higher for well-diversified portfolios with strong GP track records
Advance Rate per Investment
15-30% of individual NAV
Applied to each eligible portfolio company; higher for more liquid or de-risked investments
Concentration Limit
15-25% of borrowing base
No single portfolio company can represent more than this percentage of the total borrowing base
Pricing
EURIBOR/SONIA + 350-550 bps
Lower than deal-level private credit reflecting diversified collateral and typically lower LTV
Commitment Fee
30-50% of applicable margin
On undrawn commitment; incentivises efficient use of the facility
Arrangement Fee
1.0-2.0%
Payable on commitment; lower than deal-level facilities reflecting the recurring nature of the product
Tenor
2-4 years
Shorter than deal-level term loans; aligned with expected portfolio realisation timeline
LTV Covenant
Maximum 25-35% LTV
Tested quarterly; breach triggers margin step-up, cash sweep, or mandatory prepayment depending on severity
Minimum Number of Investments
4-8 portfolio companies
Ensures portfolio diversification is maintained; often measured as minimum eligible investments in the borrowing base
Mandatory Prepayment
25-50% of realisation proceeds
A portion of proceeds from portfolio company exits must be applied to reduce the facility
Valuation Requirements
Quarterly independent or GP valuations
Annual independent valuation typically required; interim GP valuations subject to lender review rights

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Private Credit vs Bank Lending

NAV lending is provided by both private credit funds and specialist banking teams. The comparison below highlights the differences between these two sources of capital for fund-level borrowing.

Private CreditvsBank Lending
LTV Appetite
Private CreditPrivate credit NAV lenders can advance up to 25% of gross NAV and have flexibility on concentration limits. Willingness to lend against less liquid or more concentrated portfolios.
Bank LendingBank fund finance teams typically cap LTV at 15-20% and apply stricter concentration limits. Preference for large, well-diversified portfolios from established GPs.
Structural Flexibility
Private CreditFlexible on eligible portfolio definitions, advance rates, and use of proceeds. Can accommodate bespoke features such as accordion mechanics and delayed draw commitments.
Bank LendingMore standardised approach with prescribed eligibility criteria. Less flexibility on non-standard uses of proceeds or concentrated portfolio exposures.
GP Coverage
Private CreditWilling to provide NAV facilities to mid-market and emerging GPs with smaller fund sizes and shorter track records, where the portfolio quality and structure are compelling.
Bank LendingFocused on large-cap and established GPs with long track records and fund sizes above EUR 500M. Limited appetite for emerging or smaller managers.
Pricing
Private CreditEURIBOR/SONIA + 400-550 bps. Higher headline pricing reflecting the flexibility, higher LTV, and willingness to serve less established GPs.
Bank LendingEURIBOR/SONIA + 250-400 bps. Lower cost for large, well-diversified portfolios from established GPs. Pricing advantage reflects lower regulatory capital charge.
Execution Speed
Private Credit6-10 weeks from engagement to first drawdown. Faster for repeat relationships. Single credit committee process without syndication requirements.
Bank Lending8-14 weeks. Internal credit committee plus potential for syndication if the facility size exceeds the bank's hold limit. Regulatory compliance checks add time.
Cross-Product Relationship
Private CreditNAV facility can sit alongside deal-level private credit relationships, creating alignment between the fund-level lender and the portfolio-level lender across the GP's platform.
Bank LendingNAV facility often part of a broader banking relationship including subscription lines, FX hedging, and portfolio company banking. Bundled pricing may offer cost advantages.

Who Provides NAV-Based Lending?

The NAV lending market is served by a mix of specialist fund finance providers and broader private credit platforms that have added NAV lending to their product offerings.

Specialist Fund Finance Lenders - A growing number of dedicated fund finance platforms offer NAV lending alongside subscription credit facilities and other fund-level products. These specialists have deep expertise in fund structures, LP agreement analysis, and portfolio valuation assessment. Their focus on fund finance means they understand the nuances of GP-LP dynamics, waterfall mechanics, and the interplay between fund-level and portfolio-level debt.

Direct Lending Platforms with Fund Finance Arms - Several large direct lending managers have established fund finance capabilities alongside their deal-level lending businesses. This allows them to serve PE sponsors across the capital structure - providing NAV facilities at the fund level and unitranche or mezzanine facilities at the portfolio company level. The cross-platform relationship can create informational advantages and alignment of interests.

Bank Fund Finance Teams - Major commercial and investment banks operate dedicated fund finance teams that provide NAV facilities alongside subscription lines and other banking products. Bank-provided NAV facilities typically offer lower pricing but come with stricter eligibility criteria, lower LTV ceilings, and a preference for large, established GPs. The banking relationship often extends to other services including FX hedging, cash management, and portfolio company banking.

Insurance and Institutional Capital - Insurance companies and other institutional investors participate in NAV lending through managed accounts or dedicated fund finance strategies. Their long-duration capital base and lower return hurdles can provide pricing advantages, though their appetite is typically focused on the most established GPs with the largest and most diversified portfolios.

Deal Reference: European Mid-Market PE Fund NAV Facility

Anonymised reference based on comparable transactions seen on the market.

SectorDiversified Portfolio (Business Services, Healthcare, Technology)
Deal SizeEUR 60M revolving NAV facility against a portfolio of 8 investments
LeverageInitial drawdown of EUR 40M representing approximately 18% LTV against gross portfolio NAV of EUR 225M across the 8 investments.
Tenor3 years with option to extend by 1 year subject to lender consent and portfolio quality maintenance. Quarterly borrowing base recalculation.
StructureRevolving credit facility secured by pledges over the fund's equity interests in its portfolio holding companies. Borrowing base calculated using advance rates of 20-25% against quarterly GP valuations, with annual independent valuations for the three largest positions. Concentration limit of 20% per investment. Maximum LTV covenant of 25% of gross NAV, tested quarterly. EURIBOR + 475 bps with 35% commitment fee on undrawn amounts. Mandatory prepayment of 30% of net proceeds from any portfolio company disposal.
OutcomeThe GP used the initial EUR 40M drawdown to fund a EUR 25M distribution to LPs (improving fund DPI from 0.4x to 0.7x) and a EUR 15M follow-on investment in the portfolio's technology platform for a bolt-on acquisition. Over the subsequent 12 months, two portfolio company exits generated EUR 55M of gross proceeds, of which EUR 16.5M was applied to mandatory prepayment. The facility provided the GP with flexibility to manage its fund economics actively while retaining its best-performing investments for further value creation.

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Frequently Asked Questions

Common questions about this transaction structure

The borrowing base is calculated by applying advance rates to the net asset value of each eligible portfolio company, subject to concentration limits. Each investment receives an advance rate (typically 15-30%) based on its liquidity, sector, holding period, and valuation confidence. Concentration limits cap each investment's contribution to the borrowing base at 15-25%. The aggregate borrowing base is the sum of the individual contributions, and the available facility amount is the lower of the committed facility size and the borrowing base. The calculation is updated quarterly based on the latest portfolio valuations, and the available drawing capacity adjusts accordingly.
It depends on the fund's limited partnership agreement. Many modern LPAs include provisions that permit fund-level borrowing up to a specified percentage of NAV (typically 15-25%) without LP consent. Older LPAs may require LP advisory committee approval or broader LP consent through a vote. The trend is toward including clear NAV borrowing permissions in new fund documentation, reflecting the normalisation of the product. Where consent is required, GPs typically engage with their LP advisory committee early in the process to secure approval before committing to a specific lender or structure.
If portfolio valuations decline, the borrowing base shrinks and the outstanding facility balance may exceed the recalculated borrowing base. This triggers a borrowing base deficiency, which typically requires the fund to prepay the excess within a specified period (usually 30-60 days) to bring the outstanding balance within the new borrowing base. If the LTV covenant is also breached, additional remedies may apply, including margin step-ups, cash sweep requirements, or accelerated mandatory prepayment obligations. The severity of the consequences depends on the magnitude of the decline and the specific terms of the facilities agreement.
Subscription credit facilities and NAV facilities serve different purposes at different stages of a fund's lifecycle. Subscription lines are secured against uncalled LP commitments and are used primarily during the investment period to bridge capital calls, smooth cash flow, and accelerate deployment. NAV facilities are secured against the value of the fund's portfolio investments and are used later in the fund's life when uncalled commitments are limited but the portfolio has generated significant embedded value. The two products have different collateral (LP commitments vs portfolio equity interests), different tenors (1-3 years for subscription lines vs 2-4 years for NAV), and different risk profiles (LP credit risk vs portfolio valuation risk).
The use of proceeds for NAV facilities is typically specified in the facilities agreement and requires lender consent for non-standard uses. Common permitted uses include LP distributions, follow-on investments in existing portfolio companies, funding management fees and fund expenses, and bridging short-term liquidity needs ahead of expected exit proceeds. Some NAV facilities restrict the use of proceeds to investment-related purposes and prohibit distributions, while others explicitly permit distributions as a primary use case. The permitted use of proceeds is a key negotiation point and should align with the GP's strategic objectives for the facility.
The strongest candidates for NAV lending are funds with well-diversified portfolios of 6-12+ investments across different sectors, a track record of conservative and consistent valuations (ideally with regular independent valuations), a GP with a strong reputation and long performance history, portfolio companies with stable cash flows and realistic exit paths, and a clear strategic rationale for the facility (distributions, follow-on investments, or portfolio management). Concentrated portfolios with fewer than 4-5 investments, funds with volatile or opaque valuation methodologies, and GPs without established track records face more limited availability and less favourable terms.

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