LP distributions paused - syndication

[Soup Nikk]

I’ve been invested in the Ashcroft syndication fund since 2021. The GPs recently paused the class B distributions on account of high debt service fees and obligation.

They had purchased rate caps and that helped pay for some of the fees. However the main reason for pausing was to raise cash in order to buy new rate caps (at much higher rates than 2021).

Has anyone seen similar issues on their syndication deals (from before feds increased rateS) and is this a red flag or a one off scenario given the unprecedented rate hikes.

Otherwise they’ve been really good and communicating really well and with full transparency. I am also considering investing in their new fund this year, since as operators they are reputed and have a great track record and also can get some great deals in their pipeline.

Would love to hear feedback from other investors.

[Percy N.]

The rapid interest rate hikes are causing some turmoil for those who need to purchase new rate caps or refinance in the short term. 

Based on what we are seeing in the market about 75% (rough estimate) of deals are pausing but accruing distributions to LPs and some are even doing capital calls to prevent a default scenario.  

Even though you may have a rate cap, some lenders are panicking and asking to increase reserves by 50-200% in anticipation of much higher costs for the new rate cap. 

Hopefully, with the Fed slowing down the rate of increases, it should settle the capital markets and bring the costs down a bit, but most people's crystal balls have become snowglobes in the past year.