{"concept_id":"ALTSS-CREDIT-034","slug":"subscription-line","canonical_name":"Subscription Line of Credit","aliases":["subscription facility","sub line","capital call facility","capital call line","bridge facility (fund)"],"kind":"instrument","authority":"industry","facets":["INS","OPS"],"domains":["FUND-STRUCTURES","PRIVATE-CREDIT"],"display_title":"Subscription Line of Credit","search_aliases":["what is a subscription line","subscription line of credit private equity","capital call facility","subscription line irr effect","ilpa subscription line guidance","sub line vs nav facility"],"disambiguation":"In general lending, \"drawdown facility\" means any loan drawn in tranches; for that usage see [delayed-draw term loan](/glossary/delayed-draw-term-loan).","one_sentence_definition":"A subscription line of credit is a revolving loan to a private fund secured on its investors' uncalled capital commitments and the fund's right to call them, used to fund investments and expenses before, or instead of, calling capital.","plain_english":"The lender is lending against the investors' promises to pay. The fund draws on the line to close a deal quickly, then calls capital from its limited partners to repay it, often combining several draws into one call. Because investors pay in later, the period their money is at work shortens, which raises the fund's IRR, while the interest on the line is a fund expense that slightly lowers its multiples.","parent_concepts":["fund-finance"],"child_concepts":[],"related_concepts":["nav-facility","capital-call","irr","tvpi","j-curve","preferred-return","unfunded-commitment","marketing-rule","ubti"],"comparison_concepts":[],"not_the_same_as":[{"slug":"nav-facility","distinction":"A NAV facility is secured on the portfolio and used later in a fund's life. A subscription line is secured on uncalled commitments."},{"slug":"capital-call","distinction":"A capital call draws LP money. A subscription line delays the call by borrowing first."},{"slug":"revolving-credit-facility","distinction":"A corporate revolver is underwritten on a company's cash flow and assets. A subscription line is underwritten on investors' commitments."}],"formula_ids":["F-CREDIT-034-borrowing-base-typical-structure"],"worked_examples":[{"title":"Illustrative fund without a subscription line","paragraphs":["An LP contributes $100m at year 0 and receives $150m at year 4. TVPI is 1.50x and IRR is **10.7%**."],"calc":{"fn":"irr","inputs":{"flows":[-100,0,0,0,150]},"expected":{"irr":0.106682},"tol":0.0005}},{"title":"With a one-year subscription line","paragraphs":["The fund makes the same investment at year 0 using the line, at 5% interest, and calls $105m from the LP at year 1 to repay principal and interest. The exit still distributes $150m at year 4. IRR rises to **12.6%** because the LP's money was invested for three years instead of four."],"calc":{"fn":"irr","inputs":{"flows":[0,-105,0,0,150]},"expected":{"irr":0.126248},"tol":0.0005}},{"title":"The multiple falls","paragraphs":["The LP paid in $105m for $150m back, so TVPI falls from 1.50x to **1.43x**. The line raised IRR and lowered the multiple. Both effects need disclosure."],"calc":{"fn":"fund_multiples","inputs":{"paid_in":105,"distributions":150,"nav":0},"expected":{"tvpi":1.428571},"tol":0.0005}}],"sections":[{"heading":"Collateral and structure","paragraphs":["- **Security.** An assignment of the fund's right to call capital and enforce LP funding obligations, plus a pledge of the account into which capital calls are paid. The limited partnership agreement (LPA) must permit the borrowing and the pledge. Lenders sometimes ask LPs to acknowledge the arrangement.\n- **Borrowing base.** Sized on included investors at advance rates that reflect their credit quality, with exclusion events and concentration limits.\n- **Tenor.** Short and usually renewed. The LPA often requires each borrowing to be repaid by a capital call within a set period.\n- **Pricing.** Low relative to other fund finance, because the collateral is the commitment of creditworthy institutions."]},{"heading":"What funds use it for","paragraphs":["Uses range from administrative to economic:","- **Administrative**: bridging to a capital call so a deal can close on time, reducing the number of small calls, paying expenses, providing letters of credit.\n- **Economic**: deferring calls for months to lift IRR.","The facility is the same in each case. What changes the economic effect is how long borrowings stay outstanding."]},{"heading":"Effect on reported performance","paragraphs":["Delaying calls shortens the time LP capital is invested. That raises [IRR](/glossary/irr) and reduces the early [J-curve](/glossary/j-curve). Interest and fees are fund expenses, so net multiples ([TVPI](/glossary/tvpi), [DPI](/glossary/dpi)) are slightly lower than without the line.","The [preferred return](/glossary/preferred-return) usually accrues from the date LPs contribute capital, so deferring calls can also bring a fund into carried interest sooner. Since-inception IRRs of funds that use lines heavily are not directly comparable with those of funds that do not."]},{"heading":"Disclosure: ILPA guidance and US rules","paragraphs":["- **Institutional Limited Partners Association (ILPA).** ILPA issued guidance in 2017 and expanded it in June 2020. The June 2020 guidance recommends specific quarterly and annual disclosures so LPs can monitor how the line affects their exposure and performance, including performance with and without the facility, and the facility's key terms and costs. ILPA Principles 3.0 (2019) also address subscription lines.\n- **[Marketing Rule](/glossary/marketing-rule).** In an answer to a frequently asked question (FAQ) posted on 6 February 2024, staff of the Securities and Exchange Commission (SEC) said that an adviser that excludes the effect of a subscription facility from a fund's gross IRR cannot include it in the net IRR presented under the rule, because the two would then be calculated on different methodologies. Staff FAQs set out staff views; they are not rules.\n- **Vacated rule.** On 5 June 2024 the Fifth Circuit Court of Appeals vacated the SEC's 2023 private fund adviser rules, including the quarterly-statement rule (Rule 211(h)(1)-2), so that rule is not in force."]},{"heading":"Risks for LPs","paragraphs":["- **Cash planning.** Fewer, larger calls are harder to plan for, and a lender can require the fund to call capital to repay. That pressure tends to coincide with market stress, when LPs' own liquidity is tightest (see [denominator effect](/glossary/denominator-effect)).\n- **Hidden leverage.** A line kept outstanding for long periods adds fund-level leverage that does not show in commitment figures.\n- **Tax.** For a US tax-exempt LP, income from income-producing property acquired with borrowed money (acquisition indebtedness) can be unrelated debt-financed income, included in unrelated business taxable income in proportion to the debt (Internal Revenue Code sections 512(b)(4) and 514(a)-(b)). Funds address the question in structuring and in the LPA."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Saying subscription lines leave multiples unchanged. Interest and fees reduce net multiples while IRR rises.","Comparing since-inception IRRs of funds with different line usage without asking for IRR excluding the facility.","Treating \"drawdown facility\" as a synonym. In lending, that term describes any facility drawn in tranches.","Showing gross IRR without the facility next to net IRR with it, which SEC staff said in a 6 February 2024 FAQ is not consistent with the Marketing Rule."],"edge_cases":["Funds with long average borrowing periods use the line as leverage, not as a bridge. Their reported IRR should be read with the facility effect disclosed.","Funds with retail or high-net-worth feeders may have smaller advance rates, or exclude those investors from the borrowing base."],"external_standard_mappings":[],"source_ids":["SRC-ILPA-PRINCIPLES-3","SRC-ILPA-SUBLINES-2020","SRC-US-COURT-CA5-23-60471","SRC-US-SEC-FAQ-MARKETING","SRC-US-SEC-PFAR-VACATUR-NOTICE","SRC-US-USC-26-512","SRC-US-USC-26-514"],"citations":[{"source_id":"SRC-ILPA-SUBLINES-2020","pinpoint":"Recommendations on disclosure","supports":"Quarterly and annual disclosures on the effect of facilities on exposure and performance; key terms and costs; follows the 2017 guidance","source":{"source_id":"SRC-ILPA-SUBLINES-2020","title":"Enhancing Transparency Around Subscription Lines of Credit","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/resources-tools/resource-library/enhancing-transparency-around-subscription-lines-of-credit/","year":2020,"publication_date":"June 2020 (follows the June 2017 guidance Subscription Lines of Credit and Alignment of Interests)","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"}},{"source_id":"SRC-ILPA-PRINCIPLES-3","pinpoint":"Third edition (2019)","supports":"ILPA Principles cover subscription lines","source":{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-FAQ-MARKETING","pinpoint":"FAQ posted 2024-02-06 (gross and net performance; subscription facilities); page last updated 2026-01-15","supports":"If gross IRR excludes the effect of a subscription facility, the facility cannot be included in the net IRR presented under rule 206(4)-1(d)(1); staff views, not rules","source":{"source_id":"SRC-US-SEC-FAQ-MARKETING","title":"Marketing Compliance - Frequently Asked Questions","publisher":"U.S. Securities and Exchange Commission, Division of Investment Management (staff)","document_type":"guidance","url":"https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/marketing-compliance-frequently-asked-questions","publication_date":"Last updated 2026-01-15","jurisdiction":"US","status":"current (staff views, not rules)","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","pinpoint":"Announcement of 2024-10-31, list of vacated rules","supports":"Fifth Circuit vacated the Private Fund Advisers rules on 2024-06-05; 275.211(h)(1)-2 (quarterly statements) vacated","source":{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"}},{"source_id":"SRC-US-COURT-CA5-23-60471","pinpoint":"Decision of 2024-06-05","supports":"Vacatur of the private fund adviser rules","source":{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"}},{"source_id":"SRC-US-USC-26-514","pinpoint":"Sec. 514(a)(1), (b)(1)","supports":"Debt-financed property and the debt/basis inclusion ratio","source":{"source_id":"SRC-US-USC-26-514","title":"26 U.S.C. 514 - Unrelated debt-financed income","publisher":"U.S. Congress (Internal Revenue Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/26/514","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-USC-26-512","pinpoint":"Sec. 512(b)(4)","supports":"Debt-financed property income included in UBTI notwithstanding the dividend/interest exclusions","source":{"source_id":"SRC-US-USC-26-512","title":"26 U.S.C. 512 - Unrelated business taxable income","publisher":"U.S. Congress (Internal Revenue Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/26/512","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}}],"faq":[],"seo":{},"first_published":"2025-12-30","last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/subscription-line","json_url":"https://altss.com/reference/concepts/subscription-line.json","title":"Subscription Line of Credit","formulas":[{"formula_id":"F-CREDIT-034-borrowing-base-typical-structure","concept_id":"ALTSS-CREDIT-034","label":"Borrowing base (typical structure)","plain":"Availability = min(facility commitment, sum over eligible investors of advance rate × uncalled commitment) − amount outstanding","latex":"\\text{Availability}=\\min\\Big(\\text{Commitment},\\ \\sum_{i\\in E}a_i\\,U_i\\Big)-\\text{Outstanding}","variables":[{"symbol":"U_i","meaning":"uncalled capital commitment of eligible investor i"},{"symbol":"a_i","meaning":"advance rate applied to that investor, set by its credit quality or designation in the facility"},{"symbol":"E","meaning":"investors included in the borrowing base; an LP that defaults, becomes insolvent or transfers its interest is typically excluded"}],"convention_note":"Advance rates, investor categories and concentration limits are negotiated per facility. Some facilities lend against all LPs without a formal borrowing base."}],"sources":[{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"},{"source_id":"SRC-ILPA-SUBLINES-2020","title":"Enhancing Transparency Around Subscription Lines of Credit","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/resources-tools/resource-library/enhancing-transparency-around-subscription-lines-of-credit/","year":2020,"publication_date":"June 2020 (follows the June 2017 guidance Subscription Lines of Credit and Alignment of Interests)","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"},{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-FAQ-MARKETING","title":"Marketing Compliance - Frequently Asked Questions","publisher":"U.S. Securities and Exchange Commission, Division of Investment Management (staff)","document_type":"guidance","url":"https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/marketing-compliance-frequently-asked-questions","publication_date":"Last updated 2026-01-15","jurisdiction":"US","status":"current (staff views, not rules)","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-USC-26-512","title":"26 U.S.C. 512 - Unrelated business taxable income","publisher":"U.S. Congress (Internal Revenue Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/26/512","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-USC-26-514","title":"26 U.S.C. 514 - Unrelated debt-financed income","publisher":"U.S. Congress (Internal Revenue Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/26/514","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}]}