USA – NEW YORK Trends and Developments Contributed by: Karessa Cain, Gregory Pessin, Mark Veblen, Victor Goldfeld, George Tepe and Courtney Hauck, Wachtell, Lipton, Rosen & Katz
as collateral against which funds are loaned. NAV loans can be used to increase capital efficiency and/ or produce cash proceeds available for distribution to limited partners. As of January 2025, some estimates valued the NAV market at approximately USD100 bil - lion, with others predicting growth to USD150 billion by 2030. More and more often, the debt documents of private equity portfolio companies allow the sponsor to sell the borrower portfolio company without needing to refinance the debt. This flexibility is particularly valu - able in increasing interest rate environments, where the cost of new debt at the time of a takeover might be much higher than the company’s then-existing debt that was put in place years before. Private equity sponsors had, for years, attempted to introduce this concept to the debt financing market. Only recently has the provision begun to appear in debt documents with some frequency, and the parameters around these terms can vary: some limit the use of portability to once during the life of a financing agreement; oth - ers permit private equity owners to sell only to certain “white-listed” buyers. Legal and Regulatory Developments Amendments to the Delaware General Corporation Law revitalise the MFW cleansing framework Since the Delaware Supreme Court’s 2014 opinion in Kahn v M&F Worldwide Corp. , private equity spon - sors engaging in conflicted take-private transactions have been able to avoid an onerous “entire fairness” judicial review, and instead receive business judge - ment rule treatment, by conditioning the transaction on approval of both a special committee of independ - ent directors and a fully informed majority of disinter - ested stockholders. However, recent Delaware judicial decisions had made it more difficult and unreliable to comply with the MFW framework. For example, in In re Match Group, Inc. Derivative Litigation , in April 2024, the Delaware Supreme Court held that all members of a special committee, not just a majority, must be independent in order to obtain the desired cleansing effect of the MFW framework, and the same court, in May 2024, held in City of Sarasota Firefighters’ Pension Fund v Inovalon that insufficient disclosure with respect to a target financial adviser’s conflicts of interest rendered the minority stockholders’ votes
uninformed. In light of these judicial developments, some sponsors decided to forgo seeking approval of minority stockholders and instead focused their risk mitigation efforts on building a robust special com - mittee process to shift the burden to the plaintiff in stockholder litigation to prove that a transaction was not entirely fair. In March 2025, Delaware adopted amendments to the Delaware General Corporation Law that clarify the standards for what constitutes a conflicted trans - action and the “cleansing” mechanisms that control - lers may use to de-risk conflicted transactions. The amendments achieve this in two key ways. First, the amended statute provides that a conflicted trans - action other than a going-private transaction may be cleansed by either a committee of independent directors or the informed and uncoerced majority of the minority stockholders, and the amendments reaf - firm the longstanding presumption under Delaware law that directors are disinterested and independent fiduciaries who discharge their duties in good faith. Second, the amended statute defines a controlling stockholder as one that owns a majority of the voting power of the outstanding stock entitled to vote in the election of directors, has the right to cause the election of a majority of the board of directors or has the func - tionally equivalent power to that of a majority owner. And whereas prior Delaware case law had remained silent on the required threshold for a stockholder to become a controller, the amendments expressly pro - vide that the holder of less than one-third of a com - pany’s voting power cannot be deemed a controlling stockholder. This new definition reduces the risk of litigation against a large minority investor that enters into a transaction with the company. While Delaware case law is still developing under this new framework, private equity sponsors considering or holding large minority or controlling stakes in publicly traded Dela - ware corporations should have greater confidence in structuring and executing M&A transactions involving such corporations. Mindbody decision limits aiding and abetting liability for acquirors In other good news for private equity sponsors, the Delaware Supreme Court in 2024 reaffirmed important limits on aiding and abetting liability for acquirers. The
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