Family Office Case Studies
Financing unexpected capital calls
Background
The Challenge: A Sudden and Significant Liquidity Demand
The family office received a €45m capital call from its VC fund, due in 30 days. While the family office was confident in the investment, it did not have sufficient unallocated cash to meet such a large, unexpected call. The alternative, selling liquid assets or defaulting on the capital call, was highly unattractive. Defaulting would damage the family’s reputation and forfeit a potentially lucrative investment, while a forced sale of other assets could trigger tax liabilities and disrupt the portfolio’s strategic allocation.
The Solution: A Low-LTV NAV Facility as a Liquidity Bridge
To address the immediate liquidity need, the family office secured a €45m NAV facility, representing a very conservative 15% loan-to-value (LTV) against its €300m portfolio. The facility was structured with a 5-year term and a fixed 10% Payment-in-Kind (PIK) interest rate. The low LTV ensured quick approval and favourable terms, while the PIK feature preserved the family’s operational cash flow.
The repayment plan was designed to align with the portfolio’s natural liquidity cycle. The primary source of repayment was the anticipated cash distributions from the family’s €120m PE portfolio, which was expected to generate significant liquidity over the next three years. As a crucial fallback, the family office had the option to repay the facility from its €60m portfolio of other liquid assets if the PE distributions (DPI) did not materialise as planned.
Implementation: A Multi-Layered Risk Mitigation Strategy
The €45m from the NAV facility was drawn down to meet the VC capital call, allowing the family office to participate in the high-profile investment opportunity. This action transformed a potential liquidity crisis into a manageable financing plan.
The family office’s strategy was built on multiple layers of risk mitigation:
1 Immediate Liquidity: The NAV facility provided the instant cash needed to meet the capital call.
2 Primary Repayment Source: The anticipated distributions from the PE portfolio were earmarked for repaying the facility.
3 Secondary Repayment Source: The portfolio of other liquid assets served as a reliable fallback, ensuring the facility could be repaid even in a worst-case scenario where PE distributions were delayed.
As expected, the PE portfolio began generating distributions, which were used to service and pay down the NAV facility. The loan was fully repaid within the planned 3-year window.
The Results: Crisis Averted and Opportunity Seized
The NAV facility proved to be an essential tool for managing the unexpected capital call. It provided the necessary liquidity at a critical moment, allowing the family office to uphold its commitment to its VC fund and participate in a valuable investment. The multi-layered repayment plan provided the family with confidence and flexibility, ensuring the facility could be repaid without undue stress on the portfolio.
NAV Facility Paydown from PE Distributions
The following table and chart illustrate how the NAV facility bridged the liquidity gap and was subsequently repaid by the PE distributions:
Nodem Capital is an FCA-authorised NAV lender providing facilities of $10m to $100m+ to family offices, GPs, LPs and holding companies. Contact Alex Branton at abranton@nodem.com.
