“COVID-19: What are the options for LPs and GPs?” by Rod James of Secondaries Investor featuring Andrew Gulotta
The growth of the secondaries market has halted, though certain segments remain open to LPs and GPs, according to Andrew Gulotta of Sixpoint Partners and DLA Piper’s Adam Tope.
What options are there for GPs that need additional capital for portfolio companies?
We are seeing most activity on the GP side of the market with NAV-based loans and fund-level preferred equity. Both options can be used to secure fresh capital to support existing portfolio companies, for defensive and/or offensive reasons, or even to provide LP liquidity.
A NAV-based loan is fairly efficient to implement. Debt would be incurred by the fund which is guaranteed by the NAV of the fund. An elegant solution, this debt in our experience is generally flexible on cash vs PIK interest and has few covenants – most notably a quarterly asset coverage test. Before entering into a NAV-based loan, GPs will need to confirm that their fund documentation (including side letters) allows such debt to be incurred. If not, then an amendment to the fund documents can be made to permit this transaction.
The full article can be viewed on Secondaries Investor’s Website: SI
Sixpoint Partners is a leading global advisory firm focused on a diversified set of services and solutions for the middle-market private equity industry. The firm’s core area of focus include (i) primary fund placement, (ii) secondaries advisory, and (iii) co-investment placement cross a wide range of industries, strategies, and geographies. Sixpoint is headquartered in New York with offices in Chicago, San Francisco, Austin and London.