Use by Private Equity Funds of Subscription Credit Facilities as a Form of Investment Leverage

January 05, 2017

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.

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