medium · Private Credit & Debt documentation-covenants-terms
A Direct Lending fund uses a Subscription Line to bridge capital calls. The sub-line is priced at SOFR + 175 with no floor. The fund's investments have a 1.00% floor.
In a 0.10% SOFR environment, how does the fund's use of the sub-line affect its NIM?
- The sub-line cost increases to match the asset floor
- The NIM is compressed because the sub-line is expensive
- The NIM expands because of the floor on assets
- The NIM remains unchanged
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