Structures · room 08 of 11
Fund and asset financing.
A subscription facility lends against undrawn commitments. A NAV facility lends against the portfolio. Asset-level debt lends against one asset and is repaid from it alone. Three claims, three security perimeters, and one question that decides all three: which tier does this claim actually reach.
01 · The three points
Where the borrowing sits
Three financings, three credits. The total tells you nothing about who is exposed.
The question arrives in one of two forms. The first asks whether the debt sits at the asset SPV or a NAV facility runs at the fund, and what each one does to investor reporting and to exit optionality.
The second asks whether the limited partnership agreement as it stands permits a subscription line at a quarter of commitments, and what becomes of the clean-down covenant when a close slips a quarter.
Three points in one structure, and each lends against a different thing and stops at a different tier. What follows describes how these documents are ordinarily built: documentary practice, not a rule of either regulator.
- The subscription facility
Lends against undrawn commitments and against the manager's right to call them. The borrower is the fund; the credit is the investors. Security is characteristically an assignment of the right to call capital, a charge over the account contributions are paid into, and a power of attorney permitting the lender to make the call if the manager will not. The borrowing base is built from included investors and is tested on their standing, one by one.
- The NAV facility
Lends against the value of what the fund already owns and is repaid from what comes up the chain. The borrower is a holding vehicle or the fund; the credit is the portfolio. Security is characteristically a pledge over the shares of the holding vehicles and an assignment of distributions, tested against loan-to-value on periodic valuations, with a cash sweep applying to distributions above a stated level.
- Asset-level debt
Sits at or beneath the entity that owns the asset and is repaid from that asset alone. The credit is the asset. Security runs over the asset, over the SPV's shares and over the accounts receipts are paid into, and the covenants test the asset's own performance. The ring fence is the product, and whether the ring fence holds is a drafting fact rather than a structural one.
- Why they are not a spectrum
They answer different questions and they fail separately. A structure can carry all three at once, provided each perimeter is drawn where the documents put it rather than where the model assumes it. The model almost always assumes the chart.
Each perimeter is drawn in its own security document, and the three are negotiated by different people at different moments. Nobody in the room is asked to read all three against one chart.
02 · The perimeters
The stack and its claims
A perimeter is not a tier. It is what a lender can reach.
Five strata, three perimeters. Each facility encloses part of the structure and nothing else, and the enclosure is drawn by the security documents.
The chain, and where each claim attaches
- 01 Undrawn commitments The investors' unfunded obligations and the manager's right to call them. A subscription facility lends against this stratum and against nothing beneath it. Which commitments are in the borrowing base is decided investor by investor, and some are not included at all. Credit
- 02 The fund The vehicle that signs. Its constitution decides whether it may borrow, at what level, in what amount, for what purpose, and whether it may grant the security the lender has asked for. Five separate questions inside one article, and a facility can fail on any one of them. Borrower
- 03 The holding vehicles Binding, because this is the one stratum where the financing perimeter above it and the ring fence below it are settled by the same drafting. A NAV facility attaches here. Let an asset-level obligation reach this stratum instead, by cross-collateralisation or by an upstream guarantee, and the ring fence beneath is gone in documents that still describe it as intact. Binding
- 04 The asset SPVs One vehicle for one asset, so that a default at one asset does not reach the others. Asset-level debt sits here or beneath it, secured on the asset, on these shares and on the accounts the receipts are paid into. Ring-fence
- 05 The asset, its register, its accounts Title is a fact about a register in a country and the receipts sit in a bank in a country. Both are where enforcement actually happens, and neither of them moves because a facility chose a governing law. Enforcement
Read the strata down, and read each of the three facilities against the stratum it attaches at. Only the security documents say which stratum a claim then stops at, and they are drafted after the chart everybody in the transaction is already working from.
The chain these perimeters are drawn across is designed at holding chains, and the enforcement half of it at security and enforcement.
03 · Proceeds up the chain
One realisation, drawn
Each claim is taken at its tier. The investor takes what is left.
A single realisation at one asset moves up the chain through three claims. Each crossing is a separate legal event with its own document, and the order between them is settled in those documents rather than at the realisation.
The drawing has one job. A reader who knows the total borrowing still does not know what reaches the top box.
04 · When it is reached for
Occasions and wrong answers
Financing answers a timing problem. It does not answer a design problem.
Three occasions, and four situations in which the borrowing is the wrong instrument. The fourth is the one that recurs.
Closing certainty and call smoothing. The fund can sign on the transaction's timetable rather than on the investors' notice periods, and the calls that follow are aggregated rather than made one at a time for each closing.
Liquidity against a portfolio that will not sell yet, or capital for a follow-on after the commitment period has ended. The borrowing is against what the fund already owns, so it does not reopen a closed commitment or ask an investor for anything.
The ordinary financing of the asset itself, priced against the asset and ring-fenced from everything else in the chain. This is the base case, and the other two sit above it rather than instead of it.
The four wrong answers are not exotic. Three are defects inside the financing, and the fourth is a structural contradiction the financing is being used to cover.
- Where the line is deferring calls to flatter a return
A subscription facility drawn and held changes the dates on which capital is called, and therefore the internal rate of return reported against those dates. Investors test for this directly. Use, size and duration are asked in writing at the next raise, and an answer given late reads as an answer avoided.
- Where the covenant turns on the manager's own mark
A loan-to-value covenant tested against valuations the manager itself produces, with no independent party in the process, is a covenant with one party standing on both sides of it. It holds until the first adverse quarter, which is the only quarter in which it matters.
- Where recourse reaches back above the ring fence
An asset-level facility everybody described as non-recourse, carrying cross-collateralisation or an upstream guarantee that reaches the rest of the portfolio. The term sheet does not settle what non-recourse means here. The security documents do, and they are drafted after the term sheet is circulated.
- Where the real problem is liquidity design
Borrowing to meet redemptions the vehicle's own terms should never have promised against these assets is a financing answer to a structural contradiction. The instrument that fixes it is the constitution, and that question belongs at liquidity and redemption.
05 · The binding constraints
Eight constraints
Not one of these eight is created by a fund rulebook.
Eight, in the order they arrive. Each is named to the instrument that creates it, and every one of those instruments is a document the manager signs, an investor position, or a country.
| The constraint | What creates it | Where it surfaces |
|---|---|---|
| The constitution must permit the borrowing and the security | The borrowing article and the subscription documents. No regulator writes this article. It is read before the term sheet rather than after it. | Credit approval, where the article usually turns out to permit not quite what the term sheet assumed, and the amendment then needs investor consent. |
| Investors have to be reachable for a borrowing base | Each investor's own position. Many institutions will not permit their commitment to be included without their own acknowledgement, and some are excluded outright. | Borrowing-base construction, days before the first drawdown. |
| Clean-down dates do not move when a close slips | The facility agreement's own covenant, which runs on the calendar it was signed against. | Exactly once, in the quarter a close slips, and it arrives as a default on a performing portfolio. |
| Loan-to-value is only as good as the valuation policy behind it | The facility terms: whose valuation, on what basis, at what frequency, and what follows a mark-down. | The first adverse valuation, which is also the moment the manager has least room. |
| Cross-collateralisation decides what non-recourse means | The security documents, not the term sheet. | On the first default anywhere in the portfolio. |
| Enforcement runs through the register's jurisdiction | Where the property is. The bank, the register and the title documents sit in countries, and which countries those are decides the last mile, which is mapped at security and enforcement. | At enforcement, when it can no longer be fixed. |
| Enforcement is a drafting subject before it is a litigation subject | The drafting can do a great deal, before the dispute rather than after: security over assets in a place where execution is straightforward, sums held under escrow arrangements, obligations placed on an entity with something to lose in a reachable jurisdiction. | At documentation, if anyone thinks to ask. Otherwise never, until it matters. |
| Use, size and duration of a subscription line are standing questions | Investor practice. No rulebook read on this site requires the disclosure; the diligence questionnaire asks for it anyway. | The next fundraise, in writing, alongside the record of every quarter the line was drawn. |
06 · Where it breaks
Five failure points
The failure is rarely the borrowing. It is the security the article omits.
Five, in the order they are found. The first is marked because it arrives before any money moves and is cured only by a consent exercise.
- 01 The article permits the borrowing and not the security A borrowing article that lets the fund borrow at fund level, and does not let it grant security over uncalled commitments. The facility cannot be documented as agreed. The cure is an amendment requiring investor consent, on a timetable the transaction does not have, and every day of it is visible to the counterparty.
- 02 A close slips and the clean-down cannot be met A performing portfolio sits inside a defaulted facility. The cure is either capital calls the manager did not intend to make in that quarter, or a waiver priced accordingly. Both are disclosed, and both are remembered.
- 03 A mark-down engages the cash sweep Distributions the investors were told to expect are diverted to the lender. The reporting problem is larger than the financial one, and it lands in a quarter when nothing else is wrong, which is the quarter in which it is hardest to explain.
- 04 The ring fence in the documents is not the one in the model An asset-level default triggers a cross-default at the holding vehicle, and the isolation the whole chain was built for is not there. The structure was drawn correctly in the model and incorrectly in the documents, and nobody read the two against each other.
- 05 Enforcement is priced as a step rather than as a process Security over shares in an entity registered where enforcement is court-supervised, modelled as though it were an immediate remedy. Recovery arrives later than the model said, and by then the asset has a timetable of its own. The mechanics are at security and enforcement.
07 · ADGM and the DIFC
The two centres · a financing
One centre received a body of law. The other wrote one.
For a security package that difference decides which instruments and which remedies exist at all. Five readings below are published on this site, and the four questions after them are not.
- What ADGM received
The Application of English Law Regulations 2015 bring in the common law of England and the rules of equity together, alongside a schedule of designated English enactments applied with specified modifications, and they do their work save where the zone's own legislation provides otherwise. Equity arriving with the common law is the part to notice: it keeps the trust, the fiduciary duty and the injunction inside the toolkit. The reception is also live rather than photographic, so the law of your contract keeps growing after the contract is signed.
- What the DIFC wrote
It legislated. The Centre enacted its own civil and commercial law, beginning with DIFC Law No. 3 of 2004 on the application of civil and commercial laws, wrote its own rules of court, and built its own decisions on them. A different research posture, and a different kind of certainty. A security opinion drafted for one centre is not an opinion about the other.
- Where a judgment is executed
The Judicial Authority Law provides the mechanism by which a judgment of the DIFC Courts is executed through the onshore Dubai courts. Hold the structural feature: at that stage the onshore court executes, it does not retry. It is not invited to form a view of who was right.
- The zone boundary
The boundary between a zone and the country around it, drawn at holding chains, binds every security interest taken over an onshore asset by an entity registered inside a zone, and it binds the account the receipts are paid into as well as the asset. A facility that crosses it crosses it properly or it does not cross at all.
- The lender and the perimeter
In the DIFC, GEN 2.9.4 excludes lenders accepting debt instruments in the ordinary course of lending, as an exclusion from arranging. Note precisely what that does. It addresses arranging. It says nothing about whether the lending itself is a regulated activity, and it says nothing about the borrower's conduct. Clearing one perimeter clears nothing of the other, and the ADGM position is read in ADGM rather than carried across from here.
Four questions decide a financing in either centre. Each is read from the primary instrument, dated and put in the file before the security package is agreed.
Whether a charge granted by a company registered in either centre must be registered, with which registrar, inside what period, and what a failure costs in priority. This is the perfection step. Where such a requirement carries a period, nothing drafted after the period has run will cure it, which is why the answer is read from the primary text before the security package is agreed and not after.
Which entry in each centre's catalogue of activities covers lending or credit provision, and what permission a lender operating in or from the zone requires. The exclusion quoted above answers neither question, because it is about arranging and about nothing else.
The public tier carries constraints on what a fund may hold and how it may borrow. What the narrower rungs carry is not published here, and the answer decides whether a facility is available to the vehicle at all, before any of the terms above are negotiated.
Whether pledged shares can be appropriated without a court process, and on what conditions. Every enforcement timetable in every model rests on the answer. Most models never ask, and a model that assumes the fast answer has priced a remedy it may not have.
Where the reading stops · August 2026
Each of the four decides a term in the facility, and none of the four is answered on this site. A facility negotiated before they are answered has priced four assumptions.
08 · Where our part ends
The position
We draw the perimeters. Your counsel documents what they enclose.
The three perimeters can be drawn, and which tier each claim reaches can be settled from the documents before a term sheet is signed. Five parties carry everything after that, and each of them is doing its own job correctly.
Reads the borrowing article and the security provisions as a matter of construction, negotiates the facility and the security documents, and stands behind what it drafts. The question of which structure should have been in front of it is asked earlier, in the fortnight before counsel is instructed.
In every jurisdiction where an asset, a register or an account sits. Perfection and priority opinions, and enforcement opinions where the lender requires them. The chain decides how many of these there are, which is why the chain is drawn first.
Prices the risk it is shown against the security it is offered. What can be offered is a function of a structure drawn before the first conversation, and a borrowing article read before the first term sheet.
Carry the accounting and reporting treatment of each facility, and the computation the covenants are tested against. By the time they are appointed, the terms that will govern their work for the life of the fund are already fixed.
Are told what the facility is, how large it is, how long it is held, and what it does to what reaches them. The next diligence questionnaire asks for it in writing, and the answer is read against what the quarterly reporting already said.
The structural blueprint here is the stack with the three perimeters on it, the tier each claim reaches, the borrowing article read against the term sheet, every route rejected with the constraint that removed it, and the four questions above stated as questions with the instrument that has to answer each one. That is execution-readiness: every party above then executes against it, and execution stays with the manager and its appointed counterparties.
Read at the Application of English Law Regulations 2015, DIFC Law No. 3 of 2004 and GEN 2.9 · August 2026