A net asset value (NAV) loan is secured by a diversified portfolio of private investments, such as the companies held by a private equity fund, rather than by any one asset. The lender advances a modest percentage of the portfolio’s value and is repaid from realizations and distributions as investments are sold or recapitalized.
Owners of such portfolios—investment sponsors, holding companies and family investors among them—use NAV loans to support portfolio companies, bridge to realizations or meet commitments without selling good assets at the wrong time. It is our NAV lending focus area.
NAV loans versus subscription lines
NAV loans are often confused with subscription credit facilities. They are different instruments.
| Feature | Subscription line | NAV loan |
|---|---|---|
| Collateral | The fund’s right to call capital from its investors | The portfolio of investments itself |
| When used | Early in a fund’s life, before capital is called | Mid or late life, once the portfolio is built |
| Repayment | Capital calls | Realizations, distributions and refinancing |
| Main risk | Investor credit quality | Portfolio value and timing of exits |
How NAV loans are structured
Borrower and security
The borrower is usually the fund itself or a special-purpose holding vehicle that owns the portfolio companies or the fund’s interests in them. Security commonly consists of a pledge of the equity of that holding vehicle and control over the accounts into which distributions are paid. Because the underlying companies may have their own senior debt, the NAV lender is structurally behind those creditors at the company level; the cushion comes from the equity value above that debt, across many companies.
Loan-to-value
NAV loans are conservative on leverage by design. Market practice commonly keeps loan-to-value low, often in the 10–25% range at closing, with a maximum level that triggers a cash sweep or a default if breached. Our own leverage limit across all loans is up to 65% loan-to-value, but a diversified equity portfolio calls for far less. Project Keystone is a NAV loan to a buyout fund at a low loan-to-value across an eight-company portfolio.
Illustrative arithmetic
The figures below are illustrative only.
| Item | Amount |
|---|---|
| Reported NAV of eight portfolio companies | $300M |
| Largest single company | $60M (20% of NAV) |
| Loan | $40M |
| Loan-to-value at closing | 13.3% |
| NAV decline before a 25% LTV test is breached | About 47% (to $160M) |
| NAV decline before the loan is impaired, ignoring costs | About 87% (to $40M) |
The cushion is deep, but it is only as good as the marks. That is why we size the loan to the portfolio under stress, not only at its latest mark.
Cash sweep
Most NAV loans require that a share of every realization or distribution goes to repay the loan, sometimes stepping up if loan-to-value rises or the loan ages. The sweep converts a portfolio of illiquid equity into a self-amortizing loan.
Covenants
Typical covenants in the market include a maximum loan-to-value, minimum number of investments, concentration limits on the largest one, two or three holdings, restrictions on new borrowing at the vehicle, limits on distributions to investors while the loan is outstanding, and regular valuation and portfolio reporting. Cross-collateralization across multiple assets and tight covenants on portfolio concentration and performance give multiple avenues of repayment.
Uses of NAV loans
- Follow-on capital for portfolio companies that need investment for an acquisition or a recovery, when the fund has little uncalled capital left.
- Bridging to exits that are expected but not yet signed.
- Liquidity for the owner of the portfolio, for example to meet commitments elsewhere, without a discounted secondary sale.
- Smoothing distributions, which is a use we examine carefully, because borrowing to return capital adds risk without adding value to the portfolio.
What we underwrite
- Diversification. Repayment should not depend on any single company. We look at concentration by name, sector and vintage.
- Valuation. We test the sponsor’s marks: methodology, comparables, recent transactions and how marks moved through prior downturns. Transparent valuation, with the information rights to test it, is a requirement.
- Underlying leverage. Debt at each portfolio company ranks ahead of the equity we lend against. A portfolio with heavily indebted companies has less real cushion than its NAV suggests.
- Path to repayment. Realistic exit timing for the largest assets, and what happens if exits slip by a year or two.
- The sponsor. Sponsors who understand the cash flows of their portfolio and can show a credible path to repayment from realizations.
Red flags
- One or two assets that make up most of the value.
- Marks well above where comparable public companies or recent deals suggest.
- Proceeds used to pay distributions rather than to support assets.
- Limited information rights on the underlying companies.
- A portfolio near the end of its life with no realistic exits within the loan term.
What to send
A summary of the underlying assets and their valuation, recent portfolio reports, the fund or holding structure, existing debt at each level and the published essentials: executive summary, schedule of collateral, sponsor bio and sources and uses. See how to request a loan. For how NAV loans fit into the capital structure, see the capital structure and why seniority matters. Back to the chapter overview.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.