On Thursday April 9th, the Fund Finance Association published a paper titled: Fund Finance Association – Covid-19 Response. It set out the conclusions from a call the FFA arranged between market participants, including several of the most active banks in the market and a number of significant sponsors, collectively representing over $150 billion in fund finance loan commitments.
We would encourage you to read the article in full – the conclusions it draws are mostly consistent with the information we have received from conversations with our own clients and contacts across the fund finance industry. A brief summary of the conclusions from the Response are as follows:
- Regardless of press reports to the contrary, there have been no defaults by institutional investors in any fund with a capital call facility with the bank group on the call nor have there been any defaulting investors in this group of sponsors and, accordingly, there have been no material adjustments to borrowing bases:
- There has been no increase in amounts being called from investors nor utilised under capital call facilities.
- Drawdowns from investors appear to be well within market norms for the end of a quarter and perhaps even less than is usual depending upon what comparison is used.
- Utilisations under facilities are not being drawn to hoard cash (unlike in the corporate loans market) although drawings are happening for investment activities such as debt funds drawing to fund their own borrowers.
- The fund finance market remains active with a number of accelerated extensions and increases. Some new capital call facilities have been turned away by lenders but only due to capacity constraints and there is lot of interest in NAV facilities with only a limited number of lenders servicing the same.
The Response also sets out a number of suggestions for best market practice in the current conditions.
It is encouraging to see a consistency of experience across the market which accords with the views we have been communicating to clients. The only point where the experience of Ashurst differs slightly is that we are aware of a few facilities in Europe and in Asia that have gone on hold or been slowed due to the current situation (although this has been coupled with instructions on new capital call facilities and more than off-set by other accelerated fund finance work streams). Cost of funding and pricing may prove problematic in particular with the cost of funding of USD having risen dramatically in a number of international markets.
With our market-leading fund finance practice of acting for both banks and funds globally, Ashurst would be delighted to have a conversation with you, if would like to further discuss our insights.
