Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics.
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Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics of any of the above, for both commercial and residential lenders.
A well-structured facility expands lending capacity, accesses a lower cost of funds and increases ROI through leverage.
Subscription lines and some warehouse and repo lines are designed for very short-term use, allowing aggregation of enough loans for securitization or the issuance of a CLO (with even lower costs of permanent capital). Typically, these gestation lines will be for 30 to 120 days at a time to facilitate someone’s lending business with recycling features.
Warehouse and term credit facilities also allow for purchases of pools of performing or non-performing whole loans from the secondary market, to extract loans from a lender’s own CLO or to leverage REO assets acquired via foreclosure or a deed-in-lieu.
These acquisition facilities are usually made for a 2 to 3-year term to allow a lender maximum flexibility to restructure a nonperforming loan, seasoning of the reperforming loan and subsequent redeposit into a CLO. The added benefit is providing a borrower sufficient time to finish its business plan or conduct a sale or refinancing process to take out the existing lender.
It is critical to arrange these complex facilities when a lender CAN versus when a lender NEEDS TO. The lender then has this tool in its quiver at when the world goes crazy due to COVID, war, political instability, or hyper-inflation.
The extra leverage of structured credit facilities provides lower cost of capital dry powder to play offense when others may be running for cover.