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Unfunded capital commitment12/23/2023 ![]() If, in the former case, the general partner distributes such proceeds to the Fund Borrower LPs and the limited partnership agreement provides that such distributions are to be added to the unfunded capital commitments of the Fund Borrower LPs and thereafter available to be called by the general partner, subject to any limitations or restrictions set forth in the limited partnership agreement, such returned distributions are commonly referred to as “Recallable Capital.” In order for a lender to consider Recallable Capital as unfunded Capital Commitments of the Fund Borrower LPs and otherwise eligible under a Facility borrowing base, the limited partnership agreement must explicitly provide that the distributions made to the Fund Borrower LPs may be called again by the general partner according to the provisions of the limited partnership agreement as if such amounts had not been previously called and funded. The limited partnership will grant the general partner the authority to either distribute such proceeds to the Fund Borrower LPs or retain such proceeds for certain purposes set forth in the limited partnership agreement. When a portfolio company of a Fund Borrower experiences a liquidity event, such as a sale of the company or an initial public offering, the Fund Borrower will receive proceeds realized from such liquidity event sale or disposition of the portfolio company securities. To the extent that any capital is returned and added back to the unfunded capital commitments of a Fund Borrower LP, such capital should be noted in a report detailing uncalled committed capital and in the borrowing base certificate used to calculate the borrowing base for a Facility. A common limitation that we see is that unused capital must be returned within 60-90 days following the drawdown date for such capital. It is also important to note, when reviewing a limited partnership agreement, any restrictions or limitations on the return of unused capital. The limited partnership agreement should clearly and explicitly provide that any such returned capital shall be added back to the unfunded capital commitments of such Fund Borrower LPs and considered uncalled and thus subject to recall by the general partner pursuant to the terms of the limited partnership agreement. In order for the returned capital to be included in a Facility borrowing base, it must be subject to recall by the general partner and considered callable capital again. When a general partner calls capital and the capital contributions are not used for the intended purpose, such as to make an investment in a portfolio company, or such investment is not consummated during a defined period of time, the limited partnership agreement will typically provide that the general partner may, in its sole discretion, return to the Fund Borrower LPs all or a portion of any unused capital contributions pro rata in accordance with such Fund Borrower LPs’ respective capital contributions. In this article, we will touch on a few categories of recallable capital commonly found in limited partnership agreements. Careful analysis and understanding of the recallable provisions and limitations in a limited partnership agreement is a prerequisite in responding to such a request. Fund Borrowers usually request that a lender include recallable capital in the lender’s calculation of remaining uncalled capital, which effectively increases the borrowing base and availability to a Fund Borrower under a Facility. It is important for a lender and its counsel to review the recallable capital provisions in a limited partnership agreement in connection with a prospective or existing subscription credit facility (a “Facility”). ![]() As a way to increase the availability of uncalled capital and deploy additional capital for new and existing investments, limited partnership agreements will typically permit the general partner to recall proceeds from investments received by a fund borrower (a “Fund Borrower”) and subsequently distributed by a Fund Borrower to its limited partners (“Fund Borrower LPs”). ![]()
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