Shut It Down

Net-asset-value loans have always been central to private equity looting of the firms that they take over. 

It appears that the honeymoon is over:

UK regulators are scrutinizing how some of the world’s biggest banks help private equity firms layer on debt, prying into a controversial corner of the $8.2 trillion buyout industry.

The Prudential Regulation Authority has asked banks to provide more information about their offering of net-asset-value loans to buyout funds, according to people with knowledge of the matter. It’s asked some lenders how much capital they have dedicated to the effort and how much leverage they’ve offered to fund managers for these loans, the people said.

………

NAV loans are a type of debt that allows fund managers to borrow against a pool of companies they own, making them a controversial form of financing because they let private equity managers layer more leverage onto their funds. That’s because the borrowing comes on top of loans taken out by many managers when they first acquire a company.

NAV loans have existed for more than a decade but the recent slump in dealmaking has forced many fund managers to increasingly turn to these facilities as a way to offer liquidity to early investors, especially when the sluggish appetite for transactions takes company asset sales off the table. That’s caused the market for such loans to explode in recent years and it’s now sitting at about $100 billion globally.

NAV loans are predicated on the idea that PE firms are going to loot the assets of companies that they acquire. 

As such, they should be banned.