Advantages of Subscription Credit Facilities

An Illinois resident, Attorney Zac Barnett co-founded Fund Finance Partners (FFP). Attorney Zac Barnett’s extensive experience as a lawyer in the fund finance arena has translated into his position where he assists clients with a range of asset management tasks. One product that FFP offers to its clients is a hybrid version of subscription credit facilities.

Subscription facilities, also called bridge facilities, are credit lines used to pay for portfolio company acquisitions and investments. In private equity investing, where it has become more popular, investors place their money into a fund that is managed by a sponsor or a manager. Routinely, capital calls require investors to fund those investments. If not for these credit lines, investors would have to meet these calls often at inopportune times but through the subscription facility credit line, sponsors can manage the timing of the calls to suit its investor base.

Subscription credit facilities have several advantages, one of which is concerning the internal rate of return (IRR). The higher the IRR, the higher the return on investment over time — with time being a big factor in how much money is generated from a fund. A subscription facility credit line can improve IRR through efficient timing of capital deployment.

Subscription credit facility funds also reduce the risks that a transaction is not completed because one loan covers the fund as opposed to the sponsor getting funds from a group of investors. Moreover, these credit lines allow sponsors to close quickly. Finally, subscription credit facilities allow for more predictability. Sponsors do not have to make as many capital calls because the loan can bridge expenses.