Sequencing a $1.1M capital call to 42 LPs

Question

$1.1M call on a 2021 bridge deal. Rate cap expires in five months and the money is the extension quote plus a reserve top-up the lender wants sized.

42 LPs. The operating agreement permits a call on 15 days notice and dilutes non-participants under a stated formula. Eight investors hold about 55% of the equity. I need something close to 60% participation in dollars or the dilution gets ugly enough that the people who do fund start asking why they're carrying the ones who didn't.

I have a two page notice drafted with the actual numbers in it. What I can't decide is sequencing and tone. Does the formal notice go cold to all 42 at once, or do I pre-brief the concentrated eight first and risk the rest hearing about it secondhand? And how much of the dilution mechanics do I spell out before somebody's attorney reads the notice as a threat?

Rena Expert · Accepted Answer

Pre-brief the concentrated positions by phone before the notice goes out, and say nothing on those calls that differs from what the written notice will say. The reason to call first isn't courtesy. It's that 55% of the dollars deciding late is the scenario where you miss the deadline, and you want their questions answered while you can still adjust the FAQ.

The notice itself has to track the operating agreement mechanically: the notice period, the permitted delivery method, the deadline including time of day, and wire instructions that match your usual pattern so nobody suspects fraud. Depending on how your documents are structured, a call that issues new equity can itself be a securities offering, so have securities counsel draft or review the notice before it goes anywhere.

On dilution, show dollars rather than percentages. Take a hypothetical $50,000 position, show its unreturned capital and pro rata share of the call, then show its position in the deal both ways. Percentages get read as opinion and dollar figures get read as arithmetic. Also state plainly what happens if the call fails, because people who don't understand the downside default to doing nothing.

Run two live calls at different hours, post a recording, and track responses daily. Anyone silent at day seven gets a phone call, not a second email.

The part you haven't raised: the non-participants will talk to each other, and one of them will ask whether the GP is funding its pro rata share. Decide that before the first phone call and put the answer in the notice. And if your last four quarterly updates said the deal was on plan, the call reads as a surprise no matter how well written it is. Your update history is doing more work on participation than the notice ever will.

derekj19 · Answer

The FAQ is the document that gets forwarded, not the notice. Whoever writes it should assume it lands in front of somebody's brother-in-law who does tax work and enjoys finding problems. Curious whether people ever bring in an IR contractor for a single event like this, or whether a call is always kept in house because of exactly what rena-expert said about the docs.

Sequencing a $1.1M capital call to 42 LPs

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