Net asset value (or ‘NAV’) facilities, are a type of fund finance extended as a short-term line of credit provided mainly to private capital funds to help manage their liquidity. NAV facilities are usually structured as secured financing that pledges the net value of a fund’s portfolio of assets as security for repayment.

ARC’s process for assigning long-term ratings to NAV facilities starts with a quantitative assessment in which numerous portfolio projections are performed to determine ARC’s loss-absorption loan-to-value ratio under each scenario. The scenarios are then blended, via probability weighting or expert judgement, into a final single score from 1 to 5. This score maps to a range of potential rating outputs absent the qualitative adjustment. At the last stage, a qualitative judgement is performed, which may lead to ratings being assigned within the initial range, or to notching up or down from the original assessment, subject to certain limits.