Subscription Line Lending: Due Diligence by the Numbers

Financial institutions wishing to participate in subscription line lending must take a fundamental and systematic approach to the due diligence that is required to underwrite and consummate a lending facility for a private equity fund. A lender’s due diligence should have two broad focuses: credit and legal. A close working relationship between lenders and counsel is critical to covering both of these bases; lenders will assess the overall credit quality of the mix of investors presented by the fund, and counsel will review the legal documents that make up its basket of collateral.

This chapter addresses the various due diligence tasks required as lenders and their counsel look to build a complete structure of legal agreements in order to provide sufficient comfort that the obligations of the fund investors will be enforceable in a default scenario.