Financial Tips

Financing for Private Equity Funds

Private investors often work with banks, like Univest, to support their ongoing financing needs.
Typically, a middle market investment firm falls into one of three categories: private equity,
family office or independent sponsor. Univest has a long track record of working with all of these
groups in a number of capacities including purchase transactions, ongoing financing needs, and
treasury management. For the purposes of this article, we will focus on the various types of
financing provided to a traditional, committed private equity (PE) fund.

Financing acquisitions of portfolio companies
Often when acquiring a portfolio company, the PE fund will look to leverage the transaction with
debt from a bank or other source. This is typically referred to as a leveraged buyout, or LBO.
Univest has an appetite to provide financing for LBOs given that the PE fund can bring a
company a new level of management and expertise and support the goals of the newly acquired
company with the capital it needs to continue to grow. That same capital pool also provides an
additional layer of comfort to the lender if the transition of ownership does not go as expected.

Capital Call Lines of Credit
A capital call line is a revolving line of credit that a lender provides directly to a committed PE
fund. The line of credit is collateralized with a pledge of the right to call and receive capital
contributions from the fund’s limited partners. Univest provides bridge capital to the PE fund
which is then used to fund the acquisitions and bridge the gap between the transaction and the
call and receipt of capital from the investors. Essentially, the facility allows the PE fund to focus
its energies on closing the deal knowing it has the funds waiting as opposed to attempting to
line up the capital calls with a closing date.

Liquidity Term Loans/Revolvers
In some instances, when a PE fund has reached a certain level of maturity, Univest will lend
against its portfolio of investments in order to return liquidity back to the fund for future
transactions. For example, the traditional fund is 10 years in duration. In the event that the fund,
toward the end of its duration, is limited in remaining callable capital, but has a portfolio of
investments generating strong and predictable cash flow, it can re-leverage and collateralize
those portfolio assets to return liquidity back to the fund for future deals. These types of facilities
are typically reserved for the more mature, well-heeled PE funds.

Despite the economic uncertainty we face today, Univest continues to be committed to
supporting its private investment partners with both new and existing credit facilities. To learn
more about how Univest provides financing for PE funds, reach out to Matt Gubicza at
gubiczam@unviest.net or (267) 534 4240.

Univest Bank and Trust Co. is Member FDIC, Preferred SBA and Equal Opportunity Lender.