Nodem Capital

Family Office Case Studies

Refinancing Cash Interest Debt with a PIK-Paying NAV Facility

Background

A European family office, managing a €250 million portfolio, faced a common liquidity challenge. A €50 million portion of its financing was structured as traditional, fixed-rate debt requiring significant annual cash interest payments.

While the assets were performing well, the portfolio was largely illiquid, with exit/distribution expectations still 2-3 years out. As a result, the fixed-rate debt payments constrained the family office's ability to pursue new investments.

The Challenge: The Burden of Cash-Paying Debt

The family office had an outstanding debt of €50 million with a fixed cash interest rate of 6.5%, resulting in a predictable but significant annual cash outflow of €3.25 million.

This recurring cash drain represented a major opportunity cost. The family office’s leadership sought a financing solution that would allow them to defer interest payments and redeploy the preserved cash into more productive, higher-return ventures without selling core, long-term assets.

The family office had an outstanding debt of €50 million with a fixed cash interest rate of 6.5%, resulting in a predictable but significant annual cash outflow of €3.25 million.

The Solution: A Low-LTV, Market-Rate PIK NAV Facility

The family office decided to refinance its debt with a Payment-in-Kind (PIK) NAV facility. The key objective was to halt the cash outflow for interest payments. To achieve this with minimal risk to their broader portfolio, they opted for a 20% LTV Nodem NAV facility.

To refinance the full €50 million debt, a 20% LTV required the family office to pledge a €250 million portion of its investment portfolio as collateral. The facility was priced at a floating rate of the Secured Overnight Financing Rate (SOFR) plus a spread of 500 basis points (5.00%). Assuming a SOFR rate of 5.3%, the all-in interest rate was 10.3%, with the interest structured as full PIK, capitalising the entire amount onto the outstanding balance.

Implementation: A Conservative and Strategic Refinancing

The €50 million NAV facility was secured against the €250 million portfolio of diversified private equity and real estate assets. The modest leverage provided a significant collateral cushion. The 5-year facility term (with a 2-year optional extension) provided a clear window for the family office to execute its strategic objectives while preserving liquidity, free from cash interest obligations.

The Results: Enhanced Liquidity with a Strong Safety Margin

The refinancing immediately eliminated the €3.25 million annual cash interest payment, resulting in a cumulative cash preservation of €16.25 million over the 5-year term. This capital was then available for reinvestment into higher-growth opportunities.

The trade-off for this liquidity was the compounding PIK interest at 10.3%. The family office's decision was predicated on the belief that its reinvestment strategy would generate returns exceeding this interest cost. The deferred payments allowed the family to pursue investments with far higher return potential.

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