Subscription Credit Facilities: Investor Portals – Fund Management/REIT


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Private equity funds routinely use password-protected websites (an “Investor Portal”) to issue capital calls, send distribution notices and generally communicate with their investors. In fact, many funds no longer send hard copies of these communications by mail and, in many cases, not even by email. Despite this change, documentation of subscription credit facilities has not traditionally addressed the use and control of investor portals in great detail. However, in light of recent market events, lenders are now considering whether it makes sense to specifically include mechanisms addressing the lender’s use and control of the investor portal in the underwriting credit facility documentation. .

Lenders are concerned that investors will be reluctant to fund a notice of call for funds sent in an execution scenario if it is mailed, faxed or emailed to them, particularly in light of concerns about fraudulent fundraising notices issued by illegitimate sources. Similarly, investors may be reluctant to fund a capital call if the related capital call notice were to come from an unknown email address. The ability to post a call notice on the Investor Portal would minimize and reduce this risk. Although subscription lenders generally have the right to post to a fund’s investor portal in an execution scenario via the power of attorney and “additional guarantees” that are included in standard credit facility loan documents by subscription, lenders are now considering obtaining “publication” privileges at the start of the credit facility. This granting of posting privileges from day one would ensure lenders the ability to make a capital call quickly and confirm in advance that there are no technical issues that would prevent the call from being issued. of capital. Of course, lenders would have to agree that they could only post to the investor portal for the duration of an event of default.

Although some funds may initially stop short of granting lenders posting privileges on their investor portals at the start of a trade, the risk of a subscription lender abusing this ability is low. In reality, the risk of misuse by a lender is consistent with the existing risk that the funds have already accepted in the general market. For example, underwriting credit facility officers already have contact information for all investors to correspond directly with fund investors. Lenders also retain the ability to instruct an account bank with respect to the blocking and distribution of cash from a fund’s capital contribution collateral account through the custody account control arrangements. . Funds have traditionally been comfortable with this risk as a lender would face reputational repercussions and exposure to claims and damages as a result of any misuse of these remedies. These same deterrents would also protect the fund against any potential misuse by the lender of the Investor Portal’s publishing privileges.

In addition to the benefits to lenders, funds may benefit from lender access to the Investor Portal as a means of meeting certain reporting obligations in underwriting credit facilities, which a fund may find too burdensome and/or lead to involuntary “foot faults”. “Read-only” access to the investor portal (where the lender would have the right to see everything published on the investor portal by the fund) would facilitate real-time notification of capital calls and other communications , thereby easing the reporting compliance burden for funds. Additionally, access to the Investor Portal can allow a lender to trace capital call history, revocable capital notices and contact information updates without burdening the fund through a separate delivery requirement.

In light of the above, we believe that market participants will develop provisions on the investor portal in the subscription credit facilities which would be used not only to ease the fund’s compliance burden, but also to address concerns lenders regarding issuing capital calls through an outdated paper-based process. .

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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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