Private Equity Newsletter
January 05, 2017
This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:
- President Trump: The Outlook for Private Equity
- Use by Private Equity Funds of Subscription Credit Facilities as a Form of Investment Leverage
- Recent Developments in Acquisition Finance
- Broker-Dealer Registration in the Private Equity Fund Adviser Context: How Helpful Are FINRA’s New Capital Acquisition Broker Rules?
- Is Arguing Over the Appropriate Level of Efforts Worth the Effort?
President Trump: The Outlook for Private Equity
All eyes are on Washington—or should we say Manhattan—these days, searching for clues about where our ship is heading with U.S. President-elect Donald Trump at the helm.
Use by Private Equity Funds of Subscription Credit Facilities as a Form of Investment Leverage
Subscription credit facilities, or subscription lines, are typically revolving credit facilities secured on the capital commitments of investors. Private equity funds traditionally used subscription lines solely as bridge loans to smooth capital calls–the loans would be repaid with capital called from investors, usually within a few weeks. Some private equity funds are now reportedly using subscription lines for longer term borrowing. The practice can be controversial with fund investors, and both investors and regulators are reportedly beginning to focus more on the practice.
Recent Developments in Acquisition Finance
Several recent court decisions will potentially impact the way equity sponsors handle certain matters regarding their portfolio company investments. The first is a decision of a New York bankruptcy court involving the right of a holder of distressed debt to credit-bid the full face amount of the debt in a bankruptcy auction, a right that may be especially important in the context of a loan-to-own acquisition strategy. The decision bucks the recent trend of decisions in the area and may prove helpful to those pursuing such a strategy. The second, a Delaware Chancery Court decision applying New York law, deals with instances in which the controlling affiliate of an entity, such as a sponsor in respect of its portfolio company, could potentially be found to be legally bound by the terms of a contract entered into by the portfolio company to which the sponsor is not a party.
Broker-Dealer Registration in the Private Equity Fund Adviser Context: How Helpful Are FINRA’s New Capital Acquisition Broker Rules?
Following the U.S. SEC’s first enforcement action alleging that a private equity fund adviser acted as an unregistered broker in connection with portfolio company transactions, many in the industry have been reviewing whether they should register as broker-dealers. One new option to consider is the Financial Industry Regulatory Authority’s (FINRA’s) new Capital Acquisition Broker or “CAB” rules which are characterized as providing a lighter form of broker-dealer registration. Continue reading for a comparison of the regulatory requirements for CABs against the rules for full FINRA members.
Is Arguing Over the Appropriate Level of Efforts Worth the Effort?
The recent Delaware case, Williams Cos v. Energy Transfer Equity LP (No. CV 12168-VCG, (Del. Ch. June 24, 2016)), sought to provide some additional guidance on this question, but at bottom the standard adopted by the court is consistent with other decisions in the area.
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