Does the NAV loan get paid first before the portfolio companies’ loans?
Is it typically the case that the NAV loans of private equity firms have a higher priority (during repayment) than the portfolio company loans?
No, that's not the case. NAV loans are typically provided at fund level. NAV loans rank above LPs in terms of distributions at fund level though. When a portfolio company is sold, the equity proceeds go to the fund, and the GP would pay down any fund level liabilities (e.g. NAV loans) before distributing it to LPs.
What I meant is if the portfolio companies at the private equity fund are going to default, will the secured creditors of the portfolio companies get paid first or will the fund-level NAV loan get paid first in the event of a liquidation for example?
What do you think the appropriate answer is, honestly?
NAV Loans are fund-level instruments so they are naturally subordinate in payout to portfolio company debt...
It will be the secured creditors. A private equity fund is the equity holder at portfolio company level and therefore subordinate to creditors of portfolio companies.
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