NAV facility LTV is calculated as outstanding loan balance divided by net asset value of the eligible portfolio. Typical advance rates: 10% to 25% of NAV, reflecting collateral concentration and exit liquidity. Periodic NAV remarks (often quarterly) and asset-disposition events update the borrowing base; covenant breaches trigger paydowns.
NAV LTV mechanics and how the borrowing base evolves
Borrowing base components: lender defines an eligible portfolio (typically excludes assets in default, assets under workout, assets above concentration limits, and assets with title or environmental issues). Eligible portfolio NAV times the advance rate equals the maximum borrowing base; the actual outstanding balance must stay within the borrowing base.
Concentration limits: typical lender restrictions include single-asset cap (e.g., no single asset more than 25% of the portfolio), property-type cap (e.g., no single property type more than 50%), geographic cap. These limits constrain effective leverage on concentrated portfolios.
NAV remarks: quarterly or semi-annual remarks set the asset valuations used for LTV testing. Independent valuation firms perform the remarks for institutional NAV facilities. NAV declines (whether from asset performance or market-driven cap-rate expansion) reduce the borrowing base and can trigger paydowns.
Disposition triggers: when the fund sells an asset, the asset is removed from the borrowing base immediately. Fund must repay the portion of the loan attributable to that asset, typically the asset's allocated borrowing base contribution. Overflow disposition proceeds can be used for new investments or distributed to LPs.
Covenant structure: typical covenants include minimum NAV (loan reduces if NAV falls below a defined floor), maximum LTV (lender can require paydowns if LTV exceeds a defined ceiling), minimum portfolio diversification, and debt service coverage (where the NAV facility has cash-pay interest).
Sponsor playbook: model NAV facility leverage assuming a stress NAV decline of 15% to 25% and confirm the structure can absorb the stress without triggering paydowns. Conservative leverage ratios and liquidity reserves protect against forced sales in adverse market conditions.
Sources
- Comptroller's Handbook: Leveraged Lending · Office of the Comptroller of the Currency · current
- Z.1: Financial Accounts of the United States (Flow of Funds) · Board of Governors of the Federal Reserve System · 2026-Q1