Enforcement of Forms of Credit Support in Fund Finance

Private investment funds (“Funds”) employ a variety of financing structures to improve liquidity and/or obtain leverage, and lenders similarly rely on a variety of collateral and credit support packages for repayment in connection therewith.  Three types of credit support commonly used in the fund finance market are (i) the unfunded equity capital commitments of limited partners of a Fund (“Capital Commitments”), (ii) a guaranty (“Guaranty”) and (iii) an equity commitment letter (“ECL”).  In the event a Fund and/or a lender must attempt to monetize any of these forms of credit support for purposes of repaying a credit facility, the unique characteristics of each will dictate how the parties can effectively realize the applicable credit support. This article will discuss the enforcement of a Capital Commitment, Guaranty or ECL by the applicable party in connection with a credit facility.