Single Asset Fund Recapitalizations: Key Considerations for Sponsors and Investors

Summary

This practice note addresses the elements of a single asset fund recapitalization, a transaction in which a fund sells its interest in a portfolio investment to another entity controlled by the same sponsor. In recent years, there has been a notable uptick in so-called single asset recapitalizations, as sponsors look for ways to provide liquidity to existing investors without fully divesting from a portfolio company they like. This practice note begins with a brief explanation of what these deals are and why a sponsor and its fund investors may want to pursue a single asset recap. We'll next discuss typical structures for these deals and certain considerations sponsors will want to keep in mind, as well as strategies to reduce deal execution risk. Finally, we'll quickly cover certain key tax considerations in these transactions.