Sub lines’ effect on IRR and money multiple

How the use of a subscription credit facility can change the return profile of a fund in good times and in bad.

The use of a subscription credit line improves the IRR but diminishes the investment multiple, according to analysis by TorreyCove Capital Partners.

The following table shows various hypothetical scenarios for a $100 million deal: what happens when a two-year credit facility is applied to both a successful investment outcome and an unsuccessful one. This particular example is extreme – GPs sister publication PFM spoke to typically do not leave facilities outstanding for more than 365 days – but it illustrates the additional downside risk inherent in the use of fund level leverage.

subscription credit line torreycove 411 b

Read the June edition of Infrastructure Investor for in-depth analysis of the growing use of subscription credit lines.