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Capital Call Line of Credit
Tactyc enables you to model a capital call line of credit and evaluate the impact of the line on cash flows and expected interest expenses.
This feature is currently in Beta
A capital call line of credit is a short-term loan from a third party that you can use to invest in a company without waiting for the LP Capital Call to be executed. This enhances the manager’s flexibility to execute deals and shortens the J-curve, enhancing the fund’s IRR, particularly early in a fund’s life, and therefore its competitiveness on a quartile basis.
From an LP perspective, the use of these lines helps smooth cash flows and eases the administrative burden of responding to capital calls.
To set up a capital call line of credit for your fund:
- Go to Construction Wizard > General > Committed Capital
- Open the Optional: Line of Credit section
- Define the line of credit by setting up the following variables:
- Size of Credit Facility Commitment: This is the total limit of credit available on the line
- Interest Rate: Annual rate of interest charged on borrowings
- Unused Fee: Any unused fee charged on unused capacity on the line. This is a monthly interest rate
The Line of Credit module is presented for you to:
- evaluate the appropriate size and terms of the facility for your fund
- plan capital calls, draws and repayments based on expected deployment
If you have not budgeted an expense for the Line of Credit expenses the line will not have any impact on your fund's performance metrics (such as multiples, exit proceeds or Gross and Net LP IRRs). Overall metrics such as Investable Capital, Number of Investments, Gross MOIC and TVPI should will not be impacted at all. The only change to your model will be a "smoother" cash flow profile where instead of waiting for a capital call, the model will borrow capital from the line in order to fund the projected investments and expenses.
We recommend you create a budget in your model's Fees and Expense section to reduce your investable capital by the Line of Credit expenses using the process detailed here. Creating a budget will explicitly reduce the Investable Capital by the associated interest expense load.
Line of credits will have associated interest or unused fee costs. If you want your fund's investable capital to be impacted by the line of credit costs, these costs will need to be budgeted in your fund model from the Fees and Expenses section.
- Go to Fees and Expense > Expenses
- Tactyc will show an estimated budget based on your line of credit setup. Click on Add to Budget to create a budgeted line item for line of credit expenses.
Once you have setup a line of credit, the Tactyc dashboards and Model Views will show the impact of borrowings and repayments
On your dashboard go to Fund > Credit Facility Analysis to view metrics on balances, interest expenses and credit efficiency
The model view will enable you to update the line of credit for any actuals.
- Go to Model View
- Select the Period view and scroll down to the Line of Credit section
Similar to other updates in the Model View, any updates to the Line of Credit line items will not impact your Investable Capital or forecasted investments.
For funds that have a variable commitment size over time (for e.g., a $100mm facility for first 3 years, scaling down to a $50mm facility for future years), you can edit the Commitment line item in the Model View to reflect a custom commitment schedule.
The line of credit works as follows:
- Each period if there is unused capacity available on the line, the model will draw the amount needed to fund the investments, fees and expenses from the facility
- Unused Capacity is defined as Total Commitment - Beginning Balance on Line of Credit
- If there is no availability on the line, the model will call capital in order to free up availability
- Interest Expense is calculated as Annual Interest Rate / 12 x Beginning Balance on Line of Credit
- Unused Fee is calculated as Unused Rate x (Total Credit Commitment - Ending Line of Credit Balance)