A general fixed amount that is not linked to a specific basket of the debt agreement. Some companies have a debt-based basket of measures, which is usually a leverage ratio based on total debt, not just secured debt. An “evolving” basket is a rigid cap basket that has the ability to increase or decrease by the same percentage as EBITDA increases or decreases above a certain threshold relative to the historical performance of EBTIDA or the projected performance of EBITDA in the reference scenario model for that test period. For example, if the borrower group`s EBITDA exceeds or has not reached projected EBITDA by more than 5%, an evolving basket increases or decreases by the same proportion that EBITDA has increased or decreased relative to expected EBITDA. Unlike construction baskets, which are built evenly with 50% of consolidated net profit or excess cash flows withheld, there is no fixed rate at which certain baskets of producers are determined. Instead, the hard-cap component of the producer`s basket is often negotiated between the parties. Therefore, the percentage of the growth component of the “producer” basket is then set at the level that would give an amount equal to the amount of the ceiling based on EBITDA on the balance sheet date and/or total assets. The obvious tension in the UK middle market is that borrowers would generally try to minimise excess cash flows (from which retained excess cash flows are derived) in order to minimise the amounts to be used to service capital payments for senior debt under the mandatory prepayment clause. Given that many lenders are now relaxed (and in the case of some credit funds are reluctant to pay), we see “backdoor” building baskets through a more flexible authorized acquisition/authorized payments regime, where the source of funding for these authorized funds is “unrestricted cash” (one component of which could be the retention of excess cash flows).

However, are these terms still used consistently? It seems that market participants sometimes use the terms “manufacturer”, “producer” and “scalable” baskets interchangeably, when in fact they are very different concepts. Since the words on his face have similar meanings, it is understandable that there is some degree of confusion about what these terms mean. Since producers` baskets are formulated on the basis of a “larger of” concept, the amount of the basket will also decrease if the growth component increases initially, but decreases later, but only again and again until the amount of the rigid ceiling. Since grow baskets are included in incurrence engagement packages that only test baskets at the time of use, any historical use of the basket at the top level becomes important when a grow basket later loses its size (e.B. up to the amount of the rigid cap). The crucial question that must always be asked is whether the new financing constitutes a “debt” within the meaning of the Commitment Clauses. It is not uncommon for there to be a long list of exclusions from the definition of debt, and so it is possible that a company`s ability to incur such excluded debt is not limited at all by the debt instrument. Some of the typical exclusions from the definition are, in fact, financial obligations, such as shareholder loans that are structured in the same way as equity from the perspective of bondholders or lenders (e.g. B maturity outside the term of the bond or loan, no guarantee, bond or subordinated loan) and certain types of debt financing.

It is important to note that items excluded from the definition of debt under the restrictive covenants of incurrence are generally excluded from the calculation of the leverage ratio, which may also affect the ability to incur other debts under the incurrence clauses, as explained below. Sometimes annoying for those participating in the middle market, the term “producer basket” is most often used to describe an “evolutionary basket” (see below). In its true form, a basket of producers simply adjusts the amount of a rigid ceiling basket by varying that amount only to the extent that it is less than a certain percentage of EBITDA. For example, if the hard cap is initially set at £500,000, with an opening EBITDA of £5,000,000, for the sake of argument, the basket cap could be the highest of the hard cap and 10% of EBITDA, so any increase in EBITDA from £5,000,000 to £6,000,000 will allow the borrower to raise the basket cap from £500,000 to £600,000. Specific baskets/approvals included in the debt agreement, such as the credit facility basket, the additional facility basket, the general debt basket, the capitalized lease commitment basket or the local lien basket. As with the corresponding debt agreement, these specific baskets are available without the need to meet a financial commitment. The ability to “transfer” baskets that are valued based on a fixed amount for a given fiscal year is well established in the mid-market segment and is often combined with an evolving basket. A built-in ability to “carry forward” basket amounts from future years is a much more controversial flexibility. Lenders often consider it easier for a group of borrowers to live beyond their means and are therefore much less likely to comply with such a demand.

In addition to developer baskets, which increase based on retained excess cash flow or 50% of consolidated net profit, they can include a de minimis starting amount (or a “free and clear” basket, as it is sometimes called) and also the ability to build for some of the following that occur after signing: equity contributions, amount of debt exchanged for equity, Reduction of proceeds from mandatory advance payments and returns on investment initially made with the builder`s basket. What is the key idea behind a construction basket? Building material baskets typically recognize the ability of a group of borrowers to take advantage of a portion of the profits or cash flows generated in the business, so better performance of a group of borrowers leads to a larger increase in the amount of the building material basket and provides the freedom to use excess cash for purposes other than debt servicing. Unlike “producer” baskets, which fluctuate over time with a company`s growth or decline, once added to a builder`s basket from historical performance, these amounts are still available, even though the company may experience a slowdown in the future (subject to some loss reductions using 50% of consolidated net profit as a builder). Producer basket. A basket of producers is structured to be measured from a fixed dollar amount and the amount measured by the borrower`s balance sheet total (or net property, plant and equipment or EBITDA), which is traditionally a feature among bonds. This is another concept that has been migrated from bond contracts. Contribution debt: The contribution debt basket typically allows a company to enter a leverage ratio equal to the amount of equity contributed to the group (or up to twice for leading sponsorship transactions in the United States). What is a construction basket? A “builder” basket is a basket that is traditionally “built” after the signing of the facility agreement based on the performance of the borrowing group either through retained excess cash flows or through 50% of consolidated net profit. Manufacturer carts are also known as “Available Amount” or “Cumulative Credit” carts in the United States. Availability in a builder`s basket can generally be used for restricted payments, investments, and subordinated secured/secondary lien payments, unsecured or subordinated debts that would otherwise be limited by the respective negative restrictive covenants (these are essentially negative restrictive covenants that limit the expiration of the borrower group`s liquidity through distributions to shareholders, B.

Investments of third parties or repayment of subordinated/secondary liens, unsecured or subordinated debts). It is not uncommon for the group of borrowers to receive sufficient debt relief to cope with reduced leverage or a hedging test through fixed costs before the amounts in the builder`s basket can be used, especially if the basket is used to generate a dividend and sometimes the default lock-in event also applies. Local credit lines/non-guarantor debt baskets: Local credit lines can be relevant to international businesses, often allowing a subsidiary to take on debt without collateral conditions. In addition, a basket of unsecured debts can be a source of capacity for structurally senior debt (as we will see below, these liabilities can often also be secured by assets of a subsidiary that are not the issuer/borrower or guarantors). Credit Facility Basket: In banking/bond transaction structures, the credit facility basket is a potential candidate for any type of third-party financial debt, as the definition of the credit facility is often very broad. These baskets are often initially sized to provide additional capacity or “flexibility” above the revolving credit facility initially committed. However, companies should be aware that if they use this basket for additional debt, it can effectively prevent them from making full use of their revolving credit facility if they don`t have the additional capacity to do so at that time. As discussed below, the great advantage of accessing this basket is that creditors generally enjoy the priority status of “Super Senior”, which means that these creditors are paid before other creditors from the proceeds of the execution of the transaction guarantee.

This is perhaps the easiest way to give liquidity providers the first priority status they are likely to need in terms of companies in financial difficulty. .