Equity Bridge Facility

Bridge Facility

LPC funds finance is on the rise as the European institution building industry expands. Companies such as Macquarie and Tikehau Capital Partners have entered the credit markets this year, bridging exposures of restricted partnerships (LPs) that increase fund return and enable foreign exchange hedges. In 2017, the banking industry will be set as a target for expansion and could be doubled if the increased use of assets across the entire investment category of the retail banking industry persists, said Senor Banker.

"Overall, the funds finance endowment policy segment has experienced significant growth, and we anticipate that this development will persist throughout the remainder of the year and into 2017. Indeed, it has the capacity to grow significantly if the increased use of facility across the full range of retail markets continues to trend," said Robina Barker Bennett, Lloyds Bank Commercial Banking's Robina Barker, Credit Suisse's CEO and Chairman of the Board of Lloyds Bank Commercial Banking.

Lending resources are bullied by bankers who offer to grant larger credits with longer terms, as creditors are looking at a profitable flow of businesses that offer better yields than low-interest company credit, which reinforces customer relations and could even offer buy-out deals. "We' re being flooded with bankers who want to give credit and we' re turning them away," said a privately funded bank.

Credit to EMEA FIs has so far been restricted to a large number of local Ottoman, Asian and Near East banking groups, but funding is becoming increasingly central as the number of European investors grows and their managed wealth grows. Funds are often provided to companies that engage in raising funds.

So far, the deal has been a 364-day facility that has been extended every year by two to three individual financial institutions on a bi-lateral base, but has now expanded to multi-billion US dollars requiring underwriting. "This was a bi-lateral exchange powered by bankers looking for lucrative venture yields. Investment size has increased as resources have increased, from bilaterally and externally invested assets to externally invested assets," said a credit consortium leader.

Bank charges for credit are usually close to 2%, which is favourable compared to the wafer-thin prices for credit to first-class investment-grade corporates. Transactions are hedged on the asset portfolios of the respective mutual benefit schemes. Given that the exposure is to LP cash and that many commodities are high-valued entities, many of them SWFs included, bankers consider transactions to be relatively low-risk.

"Only a few years ago, three to four years ago, a few big companies wanted to grant these credits, now the big ones have awakened to the fact that they are high value assets as they grant credits against records and assets. It' s a very good venture to take out credit against such high value loans," said the equity investor.

Credits, which are usually revolving loan arrangements, mean that there is no need for equity companies to obtain cash from an LP every times they buy a business in order to fund equity pledges. This gives them the assurance of having easy recourse to the resources and means that they are able to restrict the use of records to once or twice a year.

It also gives the mutuals time to improve their business before they resort to LP cash, which can help increase their IRR. It also prevents PWs from making use of an LP in the first year of a fund's term if they have a bad value, which can help avoiding accounting loss.

In September, Tikehau Capital Partners took out a five-year EUR 200 million revolving credit facility, which is the company's first revolving credit facility and will enable it to speed up its globalization. Eight underwriters, BNP Paribas, Credit Agricole CIB and LCL, spearheaded the signing of the credit.

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