1021-00001 · Verimark Hospitality Group · Transaction Documents/Analysis

sofr-transition-memo.docx DOCUMENT Finance & Banking

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CALDERWOOD & HARKNESS LLP One Liberty Plaza, 52nd Floor New York, NY 10006

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the individuals identified herein and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

To: Ian Blackwood, Responsible Partner, Banking & Finance Sophie Tremblay, Lead Associate, Banking & Finance

From: Daniel Obi, Associate, Banking & Finance

Date: May 24, 2022

Re: SOFR Transition Mechanics and Benchmark Replacement — Verimark Hospitality Group Inc. $700,000,000 Term Loan B Refinancing

Client/Matter: Verimark Hospitality Group Inc. / 1016-00009

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I. Executive Summary

This memorandum analyzes the transition from LIBOR-based pricing under Verimark Hospitality Group Inc.'s ("VHG" or the "Borrower") existing $625,000,000 Term Loan B (the "Existing TLB"), with Greystone Federal Credit Corp. ("Greystone") as administrative agent, originated on February 14, 2020, to Adjusted Term SOFR pricing under the proposed $700,000,000 Term Loan B (the "Proposed TLB" or the "Facility") to be arranged by Crescent Harbor Bank, N.A. ("Crescent Harbor"). The Proposed TLB represents both an upsizing and a repricing of VHG's existing term loan indebtedness, and the benchmark transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") is a central feature of the refinancing transaction.

The Existing TLB is currently priced at LIBOR + 425 basis points ("bps"). The Proposed TLB will be priced at Adjusted Term SOFR + 375 bps, with a SOFR floor of 0.50%. The 50 bps spread reduction from the existing applicable margin of 425 bps to the proposed applicable margin of 375 bps generates estimated annual interest savings of approximately $3,500,000, calculated as $700,000,000 multiplied by 0.50%. These savings are incremental to any benefits VHG may realize from the reduction of the interest rate floor from 0.75% (LIBOR floor under the Existing TLB) to 0.50% (SOFR floor under the Proposed TLB).

This memorandum addresses the following topics in detail:

(a) the definition and mechanics of Adjusted Term SOFR as the primary benchmark under the Proposed TLB;

(b) credit spread adjustments ("CSAs") applicable at the 1-month, 3-month, and 6-month tenor points, including analysis of the rounding conventions adopted in the Calderwood & Harkness LLP ("C&H") first draft of the Credit Agreement;

(d) interest period conventions, including available tenors, default election mechanics, and business day conventions;

(e) hardwired benchmark replacement fallback provisions consistent with the recommendations of the Alternative Reference Rates Committee ("ARRC"), including the benchmark transition event triggers, replacement waterfall, and conforming changes authority; and

(f) a comparison of the SOFR provisions in the C&H first draft (circulated to Crescent Harbor's counsel, Whitfield Gage & Partridge LLP ("WGP"), on May 16, 2022) against market standards and the initial Crescent Harbor term sheet (received April 22, 2022).

Recommendation: Based on the analysis set forth below, the proposed SOFR mechanics are market-standard for a Term Loan B facility of this size and credit profile. The hardwired fallback approach is preferable to the amendment approach contained in the Existing TLB and is consistent with current ARRC guidance, Federal Reserve supervisory expectations, and prevailing market practice in the broadly syndicated loan market. We recommend proceeding with the SOFR provisions as drafted in the May 16, 2022 first draft, subject to resolution of the discrete open issues identified in Section IX of this memorandum during the upcoming negotiation sessions with WGP.

II. Background

A. The Existing Greystone Facility — LIBOR-Based Pricing

VHG's Existing TLB is a $625,000,000 Senior Secured Term Loan B credit facility that closed on February 14, 2020, with Greystone Federal Credit Corp. serving as administrative agent and collateral agent (the "Existing Credit Agreement"). The facility is identified by CUSIP number 92347LAA0 and was originally syndicated to a group of approximately 47 institutional lenders, including CLO vehicles, loan funds, and bank balance sheet lenders.

The Existing TLB is priced at LIBOR plus an applicable margin of 425 bps, with a LIBOR floor of 0.75%. As of the anticipated payoff date (expected to coincide with the closing of the Proposed TLB on or about July 21, 2022), the outstanding principal balance of the Existing TLB is expected to be approximately $621,875,000, reflecting the original $625,000,000 commitment less $3,125,000 in scheduled amortization payments made since origination (1.00% per annum amortization, paid quarterly in equal installments of $1,562,500).

Critically for purposes of this memorandum, the Existing Credit Agreement contains "amendment approach" LIBOR fallback language. Under those provisions, upon the occurrence of a LIBOR cessation event (defined generally as the permanent or indefinite cessation of LIBOR publication or a public statement by the Financial Conduct Authority that LIBOR is no longer representative), the administrative agent and the Borrower would be authorized to negotiate and execute an amendment to the Existing Credit Agreement to select a replacement benchmark rate. That amendment would be subject to negative consent of the "Required Lenders" (defined as lenders holding in excess of 50% of the aggregate outstanding principal amount of loans), with a 5 business day objection period following delivery of notice of the proposed amendment.

The LIBOR cessation timeline is directly relevant to VHG's refinancing decision. ICE Benchmark Administration Limited ("IBA"), the administrator of USD LIBOR, has confirmed that it will cease publishing most USD LIBOR tenors (overnight, 1-month, 3-month, 6-month, and 12-month) after June 30, 2023. Had VHG elected not to refinance the Existing TLB, it would have been required to undertake a LIBOR-to-SOFR transition amendment under the Existing Credit Agreement within the next approximately 13 months. Such a transition amendment would have entailed significant operational complexity, legal cost, and execution risk — particularly given the amendment approach's reliance on lender negative consent, which creates the potential for lender hold-up or delay. Refinancing into a SOFR-native facility eliminates the operational and legal risk of a mid-stream benchmark transition under the Existing Credit Agreement and provides VHG with a clean, market-standard documentation framework.

B. The Proposed Crescent Harbor Facility — SOFR-Native

The Proposed TLB is a $700,000,000 Senior Secured Term Loan B credit facility to be provided under a new credit agreement (the "Credit Agreement") with Crescent Harbor Bank, N.A. serving as administrative agent, collateral agent, lead arranger, and sole bookrunner. The facility has been assigned Crescent Harbor internal loan number CHB-LF-2022-07814.

The key economic terms of the Proposed TLB are as follows:

• Pricing: Adjusted Term SOFR plus an applicable margin of 375 bps, with a SOFR floor of 0.50%.

• Maturity: July 21, 2029 (a 7-year tenor from the anticipated closing date of July 21, 2022).

• Amortization: 1.00% per annum, payable quarterly in equal installments of $1,750,000 ($700,000,000 × 1.00% ÷ 4), with the balance due at maturity.

• Repricing Protection: 1.00% soft call premium for the first 6 months following closing (through January 21, 2023).

• Original Issue discount ("OID"): 99.50 (50 bps of OID).

The Proposed TLB is being documented as a SOFR-native credit agreement from inception. No LIBOR provisions are included in the Credit Agreement, and no LIBOR-to-SOFR transition mechanics are necessary. The facility will reference Adjusted Term SOFR as its sole floating-rate benchmark from the closing date, with hardwired fallback provisions governing any future transition away from Term SOFR in the event of a cessation or non-representativeness determination.

C. VHG Capital Structure Context

Following the consummation of the refinancing and the payoff of the Existing TLB, VHG's capital structure will be as follows:

• $700,000,000 Senior Secured Term Loan B (Crescent Harbor Bank, N.A. as administrative agent) — the Proposed TLB;

• $400,000,000 Senior Secured Revolving Credit Facility (Crescent Harbor Bank, N.A. as administrative agent) — expected to be undrawn at closing; and

• $245,000,000 Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company as indenture trustee), bearing interest at a fixed rate of 5.375% per annum.

On a pro forma basis at closing, VHG's total net leverage ratio is projected to be approximately 2.52x, calculated as $858,000,000 of net debt (comprising $700,000,000 of term loan debt plus $245,000,000 of unsecured notes less approximately $87,000,000 of unrestricted cash and cash equivalents) divided by $341,000,000 of LTM Adjusted EBITDA (as defined in the Credit Agreement). This leverage level is well within the 4.5x maximum total net leverage ratio applicable under the springing financial covenant in the Revolving Credit Facility (tested only when revolving utilization exceeds 35% of the revolving commitment).

VHG's current corporate credit ratings are BB- from Kellaway Ratings Group and Ba3 from Pinnacle Credit Services. Both rating agencies have indicated that the refinancing transaction is expected to be credit-neutral, as the incremental debt from the upsizing ($700,000,000 versus $625,000,000) is offset by VHG's improved cash flow generation and the interest expense savings resulting from the spread reduction.

III. Adjusted Term SOFR — Definition and Mechanics

A. Term SOFR

The primary benchmark under the Proposed TLB is "Term SOFR," defined in the Credit Agreement as the CME Term SOFR Reference Rate, as published by CME Group Benchmark Administration Limited (the "Term SOFR Administrator"), for the applicable interest period tenor (1-month, 3-month, or 6-month).

Term SOFR is a forward-looking rate that is set at the beginning of each interest period, in a manner analogous to the way forward-looking LIBOR rates were historically set. This operational similarity is one of the primary reasons the leveraged loan market has overwhelmingly adopted Term SOFR as the preferred SOFR variant for syndicated credit facilities. Because Term SOFR is known at the outset of the interest period, the Borrower knows its interest obligation for the full period in advance, which facilitates cash management, budgeting, and financial planning. This characteristic preserves the operational convenience that was familiar to leveraged loan market participants under the LIBOR regime.

Term SOFR is available in three tenors: 1-month, 3-month, and 6-month. Each tenor corresponds to the length of the interest period selected by the Borrower. The rate is derived from SOFR futures markets (specifically, CME 1-month and 3-month SOFR futures contracts) and reflects market expectations of the path of the overnight SOFR rate over the applicable forward period. Term SOFR is published daily by the Term SOFR Administrator, typically by 5:00 a.m. CT, and is available on CME Group's website and through standard market data vendors (Westmark Services Inc., Refinitiv).

It bears noting that the leveraged loan market has overwhelmingly adopted Term SOFR — rather than alternative SOFR formulations such as Daily Simple SOFR or SOFR compounded in arrears — as the primary benchmark for new syndicated term loan facilities. This market consensus reflects the strong preference of loan market participants for a forward-looking term rate that mirrors the operational mechanics of LIBOR. The ARRC has formally recommended Term SOFR for use in business loans where a forward-looking rate is operationally preferable. Crescent Harbor's adoption of Term SOFR in its initial term sheet is consistent with this market standard.

B. SOFR Credit Spread Adjustment (CSA)

Because SOFR is a nearly risk-free rate — it is based on overnight repurchase agreements collateralized by U.S. Treasury securities — while LIBOR historically embedded a bank credit risk component reflecting the cost of unsecured interbank borrowing, a credit spread adjustment is added to Term SOFR to produce "Adjusted Term SOFR." The purpose of the CSA is to make Adjusted Term SOFR more economically comparable to LIBOR, thereby facilitating a more seamless transition for market participants accustomed to LIBOR-based pricing.

The CSAs applied under the Credit Agreement are fixed and permanent values that do not change over time and are not recalculated based on market conditions. They are based on the ISDA five-year historical median spread between USD LIBOR and SOFR, as recommended by the ARRC. The ISDA-calculated exact values and the rounded figures used in the Credit Agreement are as follows:

Note for Ian Blackwood: The Crescent Harbor term sheet uses the rounded CSA figures (0.10%, 0.15%, 0.25%), and the C&H first draft (May 16, 2022) follows this convention. There is a question as to whether to use the rounded figures or the exact ISDA five-year median figures. The rounded figures have become the predominant market convention in leveraged loan documentation, and their use simplifies interest calculations and reduces the risk of computational error. However, the exact ISDA figures are used in certain investment-grade credit facilities and in the ISDA protocol for derivatives. I recommend confirming with WGP that the rounded figures are acceptable to the lender group and proceeding on that basis. This is identified as Open Issue #1 in Section IX below.

The defined term "Adjusted Term SOFR" is calculated as follows:

Adjusted Term SOFR = Term SOFR (for the applicable tenor) + applicable CSA

For example, for a 1-month interest period: Adjusted Term SOFR = 1-month Term SOFR + 0.10%.

It should be noted that certain market participants have begun to omit the CSA entirely from their SOFR-based credit agreements, instead pricing purely on Term SOFR plus a single applicable margin that effectively "bakes in" the spread adjustment. Under this approach, the applicable margin would be set at a level that accounts for the economic difference between SOFR and LIBOR. While this simplification has gained some traction in the investment-grade loan market, the Crescent Harbor approach of separately stating the CSA remains more transparent and is the predominant convention in Term Loan B facilities in the broadly syndicated loan market. The separate statement of the CSA also facilitates cleaner comparisons with LIBOR-based pricing in legacy facilities, which is relevant for market participants (particularly CLO managers and institutional investors) evaluating relative value across their loan portfolios.

C. SOFR Floor

The Credit Agreement provides for a SOFR floor of 0.50% (50 bps). The mechanics are as follows: if the Adjusted Term SOFR for the applicable interest period is less than 0.50%, then for purposes of calculating interest, the Adjusted Term SOFR shall be deemed to be 0.50%. The floor operates as a minimum rate on the benchmark component of the interest rate, ensuring that the benchmark element of VHG's borrowing cost does not fall below 50 bps regardless of how low Term SOFR may decline.

At current rate levels, the SOFR floor is not in-the-money. As of late May 2022, 1-month Term SOFR is trading at approximately 1.45% to 1.50%, and is expected to rise further as the Federal Reserve continues its monetary tightening cycle. The Federal Open Market Committee raised the federal funds rate target range by 50 bps at its May 4, 2022 meeting, to a range of 0.75% to 1.00%, and market expectations (as implied by federal funds futures) suggest further rate increases throughout 2022 and into 2023. Accordingly, the SOFR floor is unlikely to be economically relevant in the near to medium term.

Nevertheless, the floor provides meaningful downside protection for lenders in a future declining rate environment. It is a standard feature of leveraged loan documentation and is expected by institutional investors in the TLB market.

For VHG, the reduction of the floor from 0.75% (under the Existing TLB) to 0.50% (under the Proposed TLB) is a favorable development. In a hypothetical scenario where interest rates decline to near-zero levels, VHG's minimum all-in borrowing cost under the Proposed TLB would be 4.25% (0.50% floor + 375 bps margin), compared to 5.00% (0.75% floor + 425 bps margin) under the Existing TLB — a savings of 75 bps on the floor alone, in addition to the 50 bps reduction in the applicable margin.

Illustrative All-in Rate at Current Levels: Assuming an anticipated closing date of July 21, 2022, and a 1-month Term SOFR rate of approximately 2.29% on that date (based on current market projections), the illustrative all-in interest rate would be calculated as follows:

• 1-month Term SOFR: 2.29%

• CSA (1-month): + 0.10%

• Adjusted Term SOFR: 2.39%

• Applicable Margin: + 3.75%

• All-in Interest Rate: approximately 6.14% per annum

This compares favorably to the current all-in rate on the Existing TLB, which (assuming 1-month LIBOR of approximately 1.55% as of late May 2022, above the 0.75% floor) is approximately 5.80% (1.55% + 4.25%). While the Proposed TLB's all-in rate is slightly higher on a nominal basis due to the higher benchmark rate, the 50 bps spread reduction will deliver increasing savings as rates continue to rise, since the savings operate on the margin component rather than the benchmark component of the rate.

D. Interest Period Conventions

The Credit Agreement provides for the following interest period conventions:

Available Interest Periods. VHG may elect interest periods of 1-month, 3-month, or 6-month duration, at its option, subject to availability. The election is made by delivering a notice of borrowing (or, for a continuation or conversion, a notice of continuation/conversion) to the Administrative Agent not later than 12:00 p.m. (New York City time) three (3) U.S. Government Securities Business Days prior to the first day of the requested interest period.

Default Interest Period. If VHG fails to timely deliver an interest period election notice, the applicable interest period shall be deemed to be a 1-month interest period. This is a standard default provision designed to ensure continuity of interest accrual without administrative disruption.

Maturity Date Limitation. No interest period may be selected that would extend beyond the maturity date of July 21, 2029. If the last day of an interest period would otherwise fall after the maturity date, the interest period shall end on the maturity date.

Broken Interest Periods. "Broken" interest periods (i.e., interest periods shorter than the standard 1-month, 3-month, or 6-month tenors) are not permitted under ordinary circumstances. The only exception is in connection with voluntary or mandatory prepayments, which may result in a prepayment occurring prior to the last day of an interest period. In such cases, VHG is obligated to pay breakage costs (i.e., funding cost indemnification) to affected lenders for the remainder of the interest period, as discussed further in Section VI.D below.

Interest Payment Dates. Interest is payable on the last day of each interest period. For interest periods longer than three months (i.e., the 6-month tenor), interest is also payable on each date falling three months after the first day of the interest period (i.e., an interim interest payment at the 3-month midpoint of a 6-month interest period). This interim payment convention is standard in leveraged loan documentation and aligns with the quarterly interest payment expectations of institutional lenders.

Business Day Convention. The Credit Agreement employs the Modified Following Business Day Convention. Under this convention, if the last day of an interest period falls on a day that is not a business day, the interest period shall end on the next succeeding business day, unless that next succeeding business day would fall in the next calendar month, in which case the interest period shall end on the immediately preceding business day. This convention prevents interest periods from inadvertently rolling into the next calendar month, which could create complications for accounting and reporting purposes.

IV. Hardwired Benchmark Replacement Fallback Provisions

A. Overview of Approach — "Hardwired" vs. "Amendment" Fallback

The Credit Agreement employs a "hardwired" fallback approach for benchmark replacement, consistent with the ARRC's March 2021 recommended "hardwired fallback" language for syndicated business loans (the "ARRC Hardwired Fallback Language"). Under the hardwired approach, the benchmark replacement rate and associated spread adjustment are predetermined in the Credit Agreement itself, and the transition to the replacement benchmark is triggered automatically upon the occurrence of a defined "Benchmark Transition Event" — without requiring a borrower-agent amendment, lender consent, or any other affirmative action by the parties.

This approach stands in contrast to the "amendment approach" contained in the Existing Greystone Credit Agreement, under which the administrative agent and the Borrower would have been required to negotiate and execute an amendment to the credit agreement to select a replacement benchmark upon a LIBOR cessation event, subject to negative consent of the Required Lenders (with a 5 business day objection period). While the amendment approach was the prevailing convention when the Existing TLB was documented in early 2020, the market has since shifted decisively toward the hardwired approach, driven by ARRC recommendations, regulatory guidance, and the practical experience of market participants navigating the LIBOR transition.

The advantages of the hardwired approach for VHG are significant:

• Operational Certainty. The replacement benchmark and spread adjustment are known in advance, eliminating uncertainty about the post-transition economic terms.

• No Risk of Lender Hold-Up. Because no amendment or lender consent is required, there is no risk that individual lenders (or a blocking minority of lenders) could delay or obstruct the benchmark transition, or use the transition as leverage to extract other concessions.

• Reduced Legal and Administrative Costs. The automatic trigger mechanism eliminates the need for a separate amendment process, reducing legal fees, agent fees, and administrative burden.

• Consistency Across the Syndicate. All lenders are bound by the same predetermined replacement terms, ensuring uniformity of treatment.

• Alignment with Regulatory Expectations. The Office of the Comptroller of the Currency ("OCC"), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation ("FDIC") have each issued supervisory guidance encouraging the adoption of hardwired fallback provisions in new loan originations. Crescent Harbor, as a nationally chartered bank, is subject to this guidance.

While the primary benchmark under the Credit Agreement (Term SOFR) is currently available and robust — with deep liquidity in SOFR futures markets and widespread market adoption — the hardwired fallback provisions serve as a contractual safety net in the event of a future cessation or material degradation of Term SOFR. Given that the Proposed TLB has a 7-year tenor (maturing July 21, 2029), it is prudent to include comprehensive fallback provisions that address the possibility, however remote, of a disruption to the Term SOFR benchmark during the life of the facility.

B. Benchmark Transition Events (Triggers)

The hardwired fallback is triggered upon the occurrence of a "Benchmark Transition Event," which is defined in the Credit Agreement to encompass the following circumstances:

1. Administrator Cessation Announcement. A public statement or publication of information by or on behalf of the administrator of the then-current Benchmark (e.g., CME Group Benchmark Administration Limited, in the case of Term SOFR) announcing that the administrator has ceased or will cease to provide the Benchmark permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Benchmark.

2. Regulatory Supervisor or Government Authority Announcement. A public statement or publication of information by the regulatory supervisor of the administrator of the then-current Benchmark (e.g., the U.S. Commodity Futures Trading Commission, in the case of CME Group), the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator, a resolution authority with jurisdiction over the administrator, or a court or entity with similar insolvency or resolution authority over the administrator, in each case announcing that (a) the then-current Benchmark is no longer representative, or (b) the administrator has permanently or indefinitely ceased or will permanently or indefinitely cease providing the Benchmark.

3. Benchmark Replacement Date. A "Benchmark Replacement Date" has occurred, meaning the actual date on which the Benchmark ceases to be published by the administrator or is publicly declared by the regulatory supervisor to be no longer representative. The Benchmark Replacement Date is the date on which the transition to the replacement benchmark becomes effective.

In addition, the Credit Agreement includes a "Pre-Cessation Event" trigger, consistent with ARRC recommendations. Under this provision, if the regulatory supervisor of the Benchmark administrator publicly announces that the Benchmark is no longer representative of the underlying market or economic reality it is intended to measure — even if the Benchmark is still being published by the administrator at the time of such announcement — this declaration constitutes a Benchmark Transition Event and triggers the fallback waterfall. The inclusion of the pre-cessation trigger is important because it addresses the scenario in which a benchmark continues to be published but is no longer considered reliable or representative, as occurred with certain LIBOR settings during the transition period prior to final cessation.

Upon the occurrence of a Benchmark Transition Event, the then-current Benchmark is replaced on the applicable Benchmark Replacement Date in accordance with the waterfall described in Section IV.C below, without the need for any amendment to the Credit Agreement, any consent from any Lender, or any other action by the parties (other than notice from the Administrative Agent to the Lenders and the Borrower).

C. Benchmark Replacement Waterfall

The hardwired fallback provides a sequential waterfall for selecting the replacement benchmark upon the occurrence of a Benchmark Transition Event. The waterfall is designed to identify the most robust and widely accepted replacement rate, with a secondary alternative available in the event that the primary replacement is not available.

First Priority: Daily Simple SOFR. The first replacement benchmark in the waterfall is Daily Simple SOFR, plus the applicable Benchmark Replacement Adjustment (as described in Section IV.D below). Daily Simple SOFR is the overnight Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York ("FRBNY"), applied on a simple (non-compounded) daily basis in arrears. Unlike Term SOFR, which is a forward-looking rate set at the beginning of the interest period, Daily Simple SOFR is a backward-looking overnight rate that accrues daily over the course of the interest period, with the final interest amount determined only at the end of the period (or, in practice, a few business days before the end of the period, depending on the lookback convention employed).

Daily Simple SOFR is considered the most robust SOFR variant because it is based directly on actual overnight SOFR transactions (rather than derived from futures markets, as Term SOFR is). It is the ARRC's first-priority recommended replacement for Term SOFR in the event of Term SOFR cessation and is widely used in the floating-rate note and securitization markets. However, its backward-looking nature represents a change in operational mechanics for the Borrower and the Administrative Agent, as the interest payment amount would not be known with certainty until the end (or near the end) of the interest period. The Benchmark Replacement Conforming Changes authority (discussed in Section IV.F below) is designed to address the operational adjustments necessary to implement Daily Simple SOFR, including lookback periods, rate setting conventions, and payment timing.

Second Priority: Administrative Agent / Borrower Selected Rate. If Daily Simple SOFR is not available (e.g., because the FRBNY has ceased publishing SOFR entirely), the second step of the waterfall provides that the replacement benchmark shall be the sum of (a) an alternate benchmark rate selected by the Administrative Agent (Crescent Harbor) and the Borrower (VHG), giving due consideration to (i) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time, (ii) any selection, endorsement, or recommendation of a replacement benchmark rate by the ARRC, and (iii) any selection or recommendation of a replacement benchmark rate by the Board of Governors of the Federal Reserve System or the FRBNY, plus (b) the applicable Benchmark Replacement Adjustment.

This second-priority step provides flexibility to address an unforeseen scenario in which SOFR itself ceases to be available. The requirement that the Administrative Agent and the Borrower must give "due consideration" to market convention, ARRC guidance, and Federal Reserve recommendations provides a framework for the selection process and constrains the parties' discretion to ensure a market-standard outcome.

Importantly, under the second-priority step, the Administrative Agent and the Borrower may select the replacement benchmark without the consent of the Lenders. This is consistent with the hardwired approach's design principle of minimizing consent requirements and avoiding lender hold-up risk.

D. Benchmark Replacement Adjustment

When a replacement benchmark is implemented under the waterfall described above, a "Benchmark Replacement Adjustment" is applied to the replacement benchmark to account for any spread difference between the replacement benchmark and the replaced benchmark. The purpose of the adjustment is to ensure economic equivalence — that is, to ensure that neither the Borrower nor the Lenders experience a windfall or loss solely as a result of the benchmark transition, independent of any changes in underlying interest rate levels.

The Benchmark Replacement Adjustment varies depending on which step of the waterfall is triggered:

• For Daily Simple SOFR (First Priority): The spread adjustment is the ISDA-recommended spread adjustment for the applicable tenor, calculated using the same five-year historical median methodology that underlies the CSAs applied to Term SOFR. Because both Term SOFR and Daily Simple SOFR are derived from the same underlying overnight SOFR rate, the spread adjustment for a transition from Term SOFR to Daily Simple SOFR is expected to be minimal. However, to the extent there is any structural difference between the two rates (e.g., due to the term premium embedded in Term SOFR that is absent from Daily Simple SOFR), the adjustment is intended to account for that difference.

• For Any Other Alternative Benchmark (Second Priority): The spread adjustment is determined by the Administrative Agent and the Borrower, giving due consideration to any spread adjustment selected, endorsed, or recommended by the ARRC or the International Swaps and Derivatives Association, Inc. ("ISDA") for the applicable benchmark replacement.

The Benchmark Replacement Adjustment is added to the replacement benchmark rate to produce the "Benchmark Replacement" rate, which then functions as the new benchmark under the Credit Agreement in place of the prior Adjusted Term SOFR rate. The applicable margin of 375 bps and the SOFR floor of 0.50% continue to apply to the Benchmark Replacement in the same manner as they applied to Adjusted Term SOFR.

E. Benchmark Unavailability Period

The Credit Agreement includes separate provisions governing temporary benchmark unavailability — situations in which the applicable Benchmark (Term SOFR) is temporarily unavailable on a rate-setting date, but no Benchmark Transition Event has occurred. This addresses the scenario where, for example, the Term SOFR Administrator experiences a temporary publication delay or technical disruption that prevents the timely publication of Term SOFR, but the disruption is not indicative of a permanent cessation or non-representativeness determination.

During a "Benchmark Unavailability Period," the following provisions apply:

• Interest on all outstanding Term SOFR-based loans accrues at the Base Rate, as defined in the Credit Agreement. The "Base Rate" is defined as the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Administrative Agent's publicly announced prime rate, and (c) Adjusted Term SOFR for a 1-month interest period plus 1.00%, in each case as in effect from time to time.

• VHG may not elect a new interest period that would reference the temporarily unavailable Benchmark. Any pending interest period election that references the unavailable Benchmark shall be deemed to be an election of a Base Rate loan.

• Once the Benchmark becomes available again (i.e., the Term SOFR Administrator resumes publication of Term SOFR), VHG may resume selecting SOFR-based interest periods in the ordinary course.

The Benchmark Unavailability Period provisions are designed to provide a seamless interim solution for temporary disruptions without triggering the full benchmark replacement waterfall, which is reserved for permanent or indefinite cessation events.

F. Conforming Changes

The Credit Agreement grants the Administrative Agent (Crescent Harbor) broad authority to make "Benchmark Replacement Conforming Changes" without Lender consent, in consultation with the Borrower (VHG). This authority is critical to ensuring that the operational mechanics of the Credit Agreement can be adapted as necessary to accommodate the replacement benchmark.

The scope of Benchmark Replacement Conforming Changes includes, but is not limited to, adjustments to the following:

• The definition of "Business Day" — which may need to be modified to reference "U.S. Government Securities Business Days" (the convention for SOFR-based transactions) rather than "London Banking Days" (a legacy LIBOR convention, though not applicable here given the SOFR-native structure).

• The definition of "Interest Period" — which may need to be adjusted to accommodate different rate-setting mechanics (e.g., lookback periods for backward-looking rates like Daily Simple SOFR).

• The timing and frequency of rate determinations and notifications — if the replacement benchmark is a backward-looking rate, the rate determination will occur at or near the end of the interest period rather than at the beginning.

• Interest payment dates — which may need to be adjusted to accommodate the different rate-setting mechanics of the replacement benchmark.

• Lookback period mechanics — if the replacement benchmark is Daily Simple SOFR, a lookback period (typically 2 or 5 U.S. Government Securities Business Days) is necessary to allow the Administrative Agent time to calculate the interest amount before the payment date.

• Rounding conventions — which may differ for the replacement benchmark.

• Any other technical, operational, or administrative matters that the Administrative Agent determines are reasonably necessary to reflect the adoption and implementation of the Benchmark Replacement in a manner substantially consistent with market practice (or, if the Administrative Agent determines there is no substantially similar market practice, in such other manner as the Administrative Agent determines is reasonably necessary in connection with the administration of the Credit Agreement).

Lenders will be promptly notified by the Administrative Agent of any Benchmark Replacement Conforming Changes, but Lenders do not have consent, approval, or objection rights with respect to such changes. This allocation of authority is consistent with the ARRC's recommended hardwired fallback language and reflects the operational reality that conforming changes are administrative in nature and are best handled by the Administrative Agent in coordination with the Borrower, rather than subjected to a potentially time-consuming lender consent process.

V. Comparison to the Existing Greystone Facility

This section provides a detailed comparison of the benchmark-related provisions in the Existing TLB (Greystone) and the Proposed TLB (Crescent Harbor).

A. Benchmark

Existing (Greystone): USD LIBOR (ICE LIBOR), as published by IBA — a forward-looking, term rate, set at the beginning of each interest period based on submissions from panel banks reflecting their cost of unsecured interbank borrowing.

New (Crescent Harbor): Adjusted Term SOFR (CME Term SOFR + CSA) — also a forward-looking, term rate, set at the beginning of each interest period based on SOFR futures markets reflecting market expectations of overnight secured financing rates.

Practical Impact: From an operational perspective, the transition from LIBOR to Adjusted Term SOFR is relatively seamless for VHG's treasury function. Both benchmarks are forward-looking term rates with fixings determined at the start of each interest period, so the timing and mechanics of interest rate determination are substantially similar. Glenn Fischbach (VHG Treasurer) and VHG's cash management systems should experience minimal disruption in the transition. The primary change is the source of the rate data (CME Group rather than ICE) and the addition of the CSA component, which is a fixed value that does not require any ongoing calculation or monitoring.

B. Spread / Margin

Existing: LIBOR + 425 bps

New: Adjusted Term SOFR + 375 bps

Net Spread Reduction: 50 bps

It should be noted that the CSA embedded in Adjusted Term SOFR (0.10% for a 1-month interest period) partially offsets the nominal 50 bps spread reduction on a purely arithmetic basis. However, SOFR itself is a nearly risk-free rate that historically has traded approximately 10 to 15 bps below LIBOR, consistent with the ISDA-calculated CSA values. The CSA is designed to bridge this structural difference, so the "like-for-like" economic benefit to VHG is approximately 50 bps of genuine spread savings, not merely a repackaging of the same economics in a different rate format.

Estimated Annual Interest Savings: Approximately $3,500,000 per annum, calculated as $700,000,000 × 0.50%. Over the 7-year term of the facility (assuming the full principal balance remains outstanding), the aggregate interest savings would be approximately $24,500,000 on an undiscounted basis, subject to reduction as amortization reduces the outstanding principal balance.

C. Floor

Existing: LIBOR floor of 0.75%

New: SOFR floor of 0.50%

The 25 bps reduction in the floor provides an additional benefit to VHG in a declining rate environment. The SOFR floor is applied to Adjusted Term SOFR (i.e., after the addition of the CSA), so in a scenario where Adjusted Term SOFR falls below 0.50%, the minimum all-in rate would be 4.25% (0.50% deemed Adjusted Term SOFR + 375 bps margin), compared to a minimum all-in rate of 5.00% (0.75% deemed LIBOR + 425 bps margin) under the Existing TLB.

D. Fallback Mechanics

Existing (Greystone): Amendment approach — upon a LIBOR cessation event, the administrative agent and the Borrower may negotiate and execute an amendment to select a replacement benchmark rate, subject to negative consent of Required Lenders (50% threshold) with a 5 business day objection period following delivery of notice.

New (Crescent Harbor): Hardwired approach — a predetermined sequential waterfall (Daily Simple SOFR first, then an agent/borrower-selected rate) triggers automatically upon a Benchmark Transition Event, without requiring any amendment, lender consent, or affirmative action by the parties.

The hardwired approach is clearly superior for VHG because it eliminates the execution risk and lender hold-up risk inherent in the amendment approach. Under the amendment approach, there is always a risk that a sufficient number of lenders could object to the proposed replacement rate (or fail to respond within the objection period, creating uncertainty), or that individual lenders could use the amendment process as leverage to seek other changes to the credit agreement. The hardwired approach avoids these risks entirely.

E. Summary Comparison Table

VI. Interaction with Other Credit Agreement Provisions

The SOFR benchmark mechanics interact with several other provisions of the Credit Agreement that warrant careful attention during the documentation process.

A. Repricing Protection / Soft Call

The Credit Agreement includes a 6-month repricing protection period running from the closing date (July 21, 2022) through January 21, 2023. During this period, any repricing of the Proposed TLB at a lower "effective yield" — whether through an amendment, a refinancing with replacement term loans, or an incremental equivalent transaction — requires payment of a 1.00% prepayment premium on the principal amount of the loans that are repriced or refinanced.

The definition of "effective yield" is critical to the operation of this provision. As currently drafted in the C&H first draft, "effective yield" is defined to include the applicable margin, the SOFR floor, and OID (amortized over a 4-year assumed life), but excludes the CSA and upfront arrangement fees. This treatment is consistent with market convention, as the CSA is a structural component of the benchmark (designed to bridge the LIBOR-SOFR spread differential) rather than a borrower-specific pricing element.

Action Item: We should confirm this definition of "effective yield" with WGP (Harrison Whitfield III and Megan Yeung) during credit agreement negotiations to ensure alignment between the Borrower and the Administrative Agent on the treatment of the CSA and upfront fees.

Additionally, if the Benchmark is replaced by a different rate under the hardwired fallback provisions during the repricing protection period (a remote but theoretically possible scenario), the effective yield calculation should be adjusted to ensure that the repricing protection is not inadvertently triggered — or rendered inapplicable — solely due to a change in the underlying benchmark. The C&H first draft addresses this by providing that effective yield comparisons shall be made on a like-for-like basis (i.e., both the initial TLB yield and the repriced yield shall be calculated using the same benchmark), but this provision should be reviewed for clarity.

B. Most Favored Nation (MFN) Provision

The Credit Agreement includes a Most Favored Nation ("MFN") provision applicable to incremental term loans. Under this provision, if VHG incurs incremental term loans with an effective yield that exceeds the effective yield on the initial TLB by more than 50 bps (the "MFN threshold"), the applicable margin on the initial TLB shall be increased to the level necessary to reduce the yield differential to 50 bps. The MFN provision is subject to an 18-month sunset, expiring on January 21, 2024 (18 months after the closing date).

The yield comparison for MFN purposes must be conducted on a consistent benchmark basis. That is, the "yield" on both the initial TLB and any incremental term loan should be calculated using the same benchmark (i.e., both using Adjusted Term SOFR, or, if a benchmark replacement has occurred under the hardwired fallback, both using the replacement benchmark). This ensures that any yield differential is attributable to genuine differences in pricing (margin, floor, OID) rather than to structural differences between benchmarks.

The Credit Agreement should include explicit language ensuring that a benchmark transition under the hardwired fallback does not create an artificial yield differential that would inadvertently trigger the MFN adjustment, or conversely, that a borrower cannot engineer a benchmark mismatch to avoid MFN application. The C&H first draft includes a provision to this effect, but the drafting should be reviewed during negotiations to ensure it is sufficiently clear and comprehensive.

C. Default Rate

The Credit Agreement provides for a default rate of interest equal to the otherwise applicable rate plus 200 bps per annum, applicable upon the occurrence and during the continuance of an Event of Default (and, in the case of overdue payments, automatically upon such payments becoming overdue).

The default rate applies to the full Adjusted Term SOFR-based rate, including the CSA and the applicable margin. Accordingly, the default rate would be calculated as follows:

Adjusted Term SOFR + 375 bps (applicable margin) + 200 bps (default premium) = Adjusted Term SOFR + 575 bps

Using the illustrative rate from Section III.C above (Adjusted Term SOFR of 2.39% as of the anticipated closing date), the illustrative default rate would be approximately 8.14% per annum.

D. Amortization and Prepayment Mechanics

Amortization. The Proposed TLB amortizes at a rate of 1.00% per annum, payable in equal quarterly installments of $1,750,000 ($700,000,000 × 1.00% ÷ 4). This amortization is expressed as a fixed dollar amount and is not affected by the benchmark mechanics or any benchmark transition.

Voluntary Prepayments. After the expiration of the 6-month soft call period on January 21, 2023, VHG may prepay the Proposed TLB at par (i.e., 100% of the principal amount being prepaid), plus accrued and unpaid interest and any applicable breakage costs. During the soft call period (from closing through January 21, 2023), voluntary prepayments in connection with a repricing transaction require payment of the 1.00% prepayment premium described in Section VI.A above.

Breakage Costs. If VHG prepays a SOFR-based loan on a date other than the last day of the applicable interest period, VHG is obligated to indemnify the affected Lenders for any breakage or funding losses they incur as a result of the prepayment. Breakage costs are calculated based on the difference between the SOFR rate applicable to the prepaid loan for the remainder of the broken interest period and the rate at which the Lender could reinvest the prepaid funds for such remaining period. This is a standard "make-whole" for funding losses and is not materially different from the breakage cost provisions applicable to LIBOR-based loans under the Existing TLB.

VII. ARRC Compliance and Regulatory Considerations

The proposed SOFR provisions in the Credit Agreement are consistent with the ARRC's Updated Recommended Best Practices, most recently issued in January 2022, for new USD LIBOR loan originations. The ARRC has recommended that all new U.S. dollar-denominated loan originations use SOFR (or another alternative reference rate) rather than USD LIBOR, and that all SOFR-based loan documentation include hardwired fallback provisions. The Proposed TLB complies with both of these recommendations.

Federal banking regulators have also issued guidance encouraging the adoption of SOFR-based lending and hardwired fallback provisions. Specifically:

• The Board of Governors of the Federal Reserve System, the OCC, and the FDIC jointly issued supervisory guidance in November 2020 (SR Letter 20-27 / OCC Bulletin 2020-98) encouraging supervised institutions to cease entering into new LIBOR-based contracts as soon as practicable, and in any event by December 31, 2021.

• The OCC issued additional guidance in March 2021 emphasizing the importance of robust fallback language in SOFR-based contracts and encouraging the use of the ARRC's hardwired fallback approach.

• The Federal Reserve's supervision teams have incorporated LIBOR transition preparedness into their examination priorities, and supervised institutions (including Crescent Harbor) are expected to demonstrate that new loan originations reference alternative reference rates with appropriate fallback provisions.

VHG's and Crescent Harbor's adoption of the hardwired fallback approach in the Proposed TLB aligns fully with these regulatory expectations.

Additionally, the New York State LIBOR Legislation — codified as New York General Obligations Law, Article 18-C, which became effective in April 2022 — provides a statutory fallback mechanism for contracts governed by New York law that reference USD LIBOR and do not contain a clearly defined and practicable fallback mechanism. Under the statute, upon a LIBOR cessation event, the "recommended benchmark replacement" (defined as the SOFR-based rate recommended by the Federal Reserve Board or the FRBNY, plus the applicable ISDA spread adjustment) automatically replaces LIBOR by operation of law. Because the proposed Credit Agreement is SOFR-native from inception and includes a comprehensive hardwired fallback, the New York LIBOR Legislation is not directly applicable. Nevertheless, the existence of this legislation provides additional comfort that the legal infrastructure in New York (the governing law jurisdiction of the Credit Agreement) supports and facilitates SOFR-based contracts and benchmark replacement mechanisms.

VIII. Practical Implementation Considerations for VHG

A. Treasury Systems

VHG's treasury function, led by Glenn Fischbach (Treasurer), should take the following steps to prepare for the transition from LIBOR-based pricing to Adjusted Term SOFR pricing:

• Rate Source Update. VHG's interest rate tracking and cash management systems should be updated to reference CME Term SOFR as the applicable benchmark, rather than ICE LIBOR. Term SOFR rates are published daily by CME Group Benchmark Administration Limited and are available through the CME Group website, Westmark Services Inc. (ticker: TSFR1M, TSFR3M, TSFR6M for 1-month, 3-month, and 6-month tenors, respectively), and Refinitiv. VHG should confirm that its treasury management system (or the third-party platform it utilizes) can source CME Term SOFR rates automatically and integrate them into interest calculation and forecasting models.

• CSA Integration. VHG's systems should be configured to add the applicable fixed CSA (0.10% for 1-month, 0.15% for 3-month, 0.25% for 6-month) to the Term SOFR rate to derive the Adjusted Term SOFR, which is the benchmark used for interest calculations under the Credit Agreement.

• Day Count Convention. The interest calculation methodology under the Proposed TLB is actual/360, which is the same day count convention used for LIBOR-based loans under the Existing TLB. Accordingly, no adjustment to VHG's interest calculation systems is needed in this respect.

B. Hedging Implications

If VHG has existing LIBOR-based interest rate hedging instruments (such as interest rate caps or swaps) that were entered into in connection with the Existing Greystone TLB, those hedging instruments will need to be addressed in connection with the refinancing. Specifically:

• Existing Hedges. Any LIBOR-based hedges should be unwound, novated, or amended to reference SOFR, in coordination with the relevant hedge counterparties. If the existing hedges are subject to ISDA Master Agreements that have been amended to incorporate the ISDA IBOR Fallbacks Protocol or the IBOR Fallbacks Supplement, the transition from LIBOR to SOFR may occur automatically under the terms of those amendments upon LIBOR cessation. However, if the refinancing occurs before LIBOR cessation (as is expected), the hedges may need to be unwound or restructured proactively to align with the new TLB.

• New Hedges. If VHG desires to hedge the interest rate exposure on the Proposed TLB (e.g., through an interest rate cap or a pay-fixed/receive-floating swap), any new hedging instruments should reference SOFR (specifically, overnight SOFR compounded in arrears, which is the standard for SOFR-based derivatives) to ensure a close match with the underlying loan benchmark. While there will be some basis risk between Term SOFR (the loan benchmark) and overnight SOFR compounded in arrears (the derivatives benchmark), this basis risk is generally considered manageable and has been accepted by the market. The SOFR derivatives market is deep and liquid, with significant trading volumes in SOFR-based swaps and options.

• Advisory Coordination. VHG should coordinate with its financial advisor, Meridian Strauss Advisory LLC (Elise Cavanaugh), on the hedging strategy for the Proposed TLB, including the timing of unwinding existing hedges and the execution of any new hedging transactions.

C. Existing RCF Coordination

VHG's existing $400,000,000 Senior Secured Revolving Credit Facility, with Crescent Harbor Bank, N.A. as administrative agent, is a critical element of VHG's overall capital structure and liquidity profile. In connection with the refinancing of the TLB, the following coordination matters should be addressed:

• Benchmark Alignment. We should confirm whether the existing RCF has already transitioned to SOFR-based pricing or remains LIBOR-based. If the RCF is still LIBOR-based, VHG should coordinate with Crescent Harbor to align the benchmark across both the RCF and the new TLB to simplify treasury operations, compliance monitoring, and internal reporting. Benchmark alignment would also reduce basis risk if VHG enters into hedging arrangements that cover exposure under both facilities.

• Intercreditor Agreement. The Amended and Restated Intercreditor Agreement, which is expected to be executed at closing on July 21, 2022 among Crescent Harbor (as RCF agent and TLB agent), should account for the possibility that the RCF and the TLB may reference different benchmarks during any interim transition period (if the RCF has not yet been amended to reference SOFR). The intercreditor agreement should also address the treatment of benchmark replacement events under the hardwired fallback, including any potential timing differences between benchmark transitions under the two facilities.

• Administrative Simplification. Given that Crescent Harbor serves as administrative agent under both the RCF and the TLB, there is a natural opportunity to coordinate benchmark alignment and administrative processes across the two facilities. We should discuss with Crescent Harbor's agency team whether a concurrent amendment to the RCF (to transition to SOFR, if not already done) would be feasible and desirable in connection with the TLB closing.

IX. Open Issues and Recommendations

The following open issues should be addressed during the upcoming negotiation sessions with WGP and resolved prior to finalization of the Credit Agreement:

1. CSA Rounding Convention. Confirm with WGP (Harrison Whitfield III) that the rounded CSA figures (0.10%, 0.15%, 0.25%) are acceptable to the lender group. The alternative would be to use the exact ISDA five-year historical median figures (0.11448%, 0.26161%, 0.42826%). While the exact figures could be argued to be more precise, the rounded figures have become the overwhelmingly prevalent convention in leveraged loan documentation and are easier to administer. Recommendation: Use the rounded figures.

2. Term SOFR Screen Reference. Confirm the specific Westmark Services Inc. screen page, Calderon Health IT screen page, or CME Group website URL to be referenced in the Credit Agreement as the authoritative source for determining Term SOFR rates. The C&H first draft currently references the CME Group website (https://www.cmegroup.com/market-data/cftc-reporting/sofr.html) as the primary source, with Westmark Services Inc. as a secondary source. We should confirm with Crescent Harbor's operations team that this is consistent with their administrative systems and standard practice.

3. Conforming Changes Authority. The current draft of the Credit Agreement grants the Administrative Agent broad authority to make Benchmark Replacement Conforming Changes in consultation with the Borrower but without Lender consent. This allocation of authority is favorable to VHG, as it allows necessary operational adjustments to be made efficiently without the delay and uncertainty of a lender consent process. We anticipate that WGP may request, on behalf of the lender group, that "Required Lender" consent (or at least negative consent with a 5 business day objection period) be required for certain categories of Conforming Changes — particularly those that could affect the economic terms of the loans (e.g., changes to interest calculation methodology or payment frequency). Recommendation: Resist any expansion of lender consent rights over Conforming Changes. The ARRC's recommended hardwired fallback language does not contemplate lender consent for conforming changes, and introducing such a requirement would undermine the efficiency benefits of the hardwired approach. If WGP insists on some form of lender involvement, a narrow negative consent right (limited to conforming changes that would materially alter the economic terms of the loans) may be an acceptable compromise, but we should strongly advocate for the current formulation.

4. Benchmark Replacement Adjustment for Daily Simple SOFR. If Daily Simple SOFR becomes the replacement benchmark under the first step of the waterfall, confirm whether the CSA currently applied to Term SOFR (0.10% for 1-month, etc.) is carried forward as the Benchmark Replacement Adjustment, or whether a separate, independently calculated adjustment is applied. The C&H first draft references the ISDA-recommended spread adjustment for the applicable tenor, which is based on the same five-year historical median methodology as the Term SOFR CSA but may differ slightly from the rounded CSA figures used for Term SOFR. There is a potential for a small economic mismatch if the rounded CSAs used for Term SOFR differ from the ISDA-recommended adjustments used for Daily Simple SOFR. Recommendation: For consistency and simplicity, consider specifying that the Benchmark Replacement Adjustment for Daily Simple SOFR shall be the same rounded CSA figures used for Adjusted Term SOFR (i.e., 0.10%, 0.15%, 0.25%), rather than cross-referencing the ISDA protocol. Alternatively, if the exact ISDA figures are used for the Benchmark Replacement Adjustment, ensure that the economic impact of the difference is understood and acceptable to both parties.

5. Yield Definition Alignment. Ensure that the definitions of "yield" and "effective yield" used in the MFN provision (Section 2.14 of the C&H first draft) and the repricing protection provision (Section 2.05(b)) are drafted consistently with the SOFR benchmark framework. In particular, these definitions should: (a) specify that the CSA is excluded from the yield calculation (consistent with market convention); (b) provide that yield comparisons between the initial TLB and any incremental term loan or repriced loan shall be made on a like-for-like benchmark basis; and (c) include a mechanism to ensure that a benchmark replacement event under the hardwired fallback does not create an artificial yield differential that would inadvertently trigger or defeat the MFN or repricing protection

CALDERWOOD & HARKNESS LLP One Liberty Plaza, 52nd Floor New York, NY 10006
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the individuals identified herein and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
To: Ian Blackwood, Responsible Partner, Banking & Finance Sophie Tremblay, Lead Associate, Banking & Finance
From: Daniel Obi, Associate, Banking & Finance
Date: May 24, 2022
Re: SOFR Transition Mechanics and Benchmark Replacement — Verimark Hospitality Group Inc. $700,000,000 Term Loan B Refinancing
Client/Matter: Verimark Hospitality Group Inc. / 1016-00009
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I. Executive Summary
This memorandum analyzes the transition from LIBOR-based pricing under Verimark Hospitality Group Inc.'s ("VHG" or the "Borrower") existing $625,000,000 Term Loan B (the "Existing TLB"), with Greystone Federal Credit Corp. ("Greystone") as administrative agent, originated on February 14, 2020, to Adjusted Term SOFR pricing under the proposed $700,000,000 Term Loan B (the "Proposed TLB" or the "Facility") to be arranged by Crescent Harbor Bank, N.A. ("Crescent Harbor"). The Proposed TLB represents both an upsizing and a repricing of VHG's existing term loan indebtedness, and the benchmark transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") is a central feature of the refinancing transaction.
The Existing TLB is currently priced at LIBOR + 425 basis points ("bps"). The Proposed TLB will be priced at Adjusted Term SOFR + 375 bps, with a SOFR floor of 0.50%. The 50 bps spread reduction from the existing applicable margin of 425 bps to the proposed applicable margin of 375 bps generates estimated annual interest savings of approximately $3,500,000, calculated as $700,000,000 multiplied by 0.50%. These savings are incremental to any benefits VHG may realize from the reduction of the interest rate floor from 0.75% (LIBOR floor under the Existing TLB) to 0.50% (SOFR floor under the Proposed TLB).
This memorandum addresses the following topics in detail:
(a) the definition and mechanics of Adjusted Term SOFR as the primary benchmark under the Proposed TLB;
(b) credit spread adjustments ("CSAs") applicable at the 1-month, 3-month, and 6-month tenor points, including analysis of the rounding conventions adopted in the Calderwood & Harkness LLP ("C&H") first draft of the Credit Agreement;
(c) the SOFR floor and its interaction with the CSA and applicable margin;
(d) interest period conventions, including available tenors, default election mechanics, and business day conventions;
(e) hardwired benchmark replacement fallback provisions consistent with the recommendations of the Alternative Reference Rates Committee ("ARRC"), including the benchmark transition event triggers, replacement waterfall, and conforming changes authority; and
(f) a comparison of the SOFR provisions in the C&H first draft (circulated to Crescent Harbor's counsel, Whitfield Gage & Partridge LLP ("WGP"), on May 16, 2022) against market standards and the initial Crescent Harbor term sheet (received April 22, 2022).
Recommendation: Based on the analysis set forth below, the proposed SOFR mechanics are market-standard for a Term Loan B facility of this size and credit profile. The hardwired fallback approach is preferable to the amendment approach contained in the Existing TLB and is consistent with current ARRC guidance, Federal Reserve supervisory expectations, and prevailing market practice in the broadly syndicated loan market. We recommend proceeding with the SOFR provisions as drafted in the May 16, 2022 first draft, subject to resolution of the discrete open issues identified in Section IX of this memorandum during the upcoming negotiation sessions with WGP.
II. Background
A. The Existing Greystone Facility — LIBOR-Based Pricing
VHG's Existing TLB is a $625,000,000 Senior Secured Term Loan B credit facility that closed on February 14, 2020, with Greystone Federal Credit Corp. serving as administrative agent and collateral agent (the "Existing Credit Agreement"). The facility is identified by CUSIP number 92347LAA0 and was originally syndicated to a group of approximately 47 institutional lenders, including CLO vehicles, loan funds, and bank balance sheet lenders.
The Existing TLB is priced at LIBOR plus an applicable margin of 425 bps, with a LIBOR floor of 0.75%. As of the anticipated payoff date (expected to coincide with the closing of the Proposed TLB on or about July 21, 2022), the outstanding principal balance of the Existing TLB is expected to be approximately $621,875,000, reflecting the original $625,000,000 commitment less $3,125,000 in scheduled amortization payments made since origination (1.00% per annum amortization, paid quarterly in equal installments of $1,562,500).
Critically for purposes of this memorandum, the Existing Credit Agreement contains "amendment approach" LIBOR fallback language. Under those provisions, upon the occurrence of a LIBOR cessation event (defined generally as the permanent or indefinite cessation of LIBOR publication or a public statement by the Financial Conduct Authority that LIBOR is no longer representative), the administrative agent and the Borrower would be authorized to negotiate and execute an amendment to the Existing Credit Agreement to select a replacement benchmark rate. That amendment would be subject to negative consent of the "Required Lenders" (defined as lenders holding in excess of 50% of the aggregate outstanding principal amount of loans), with a 5 business day objection period following delivery of notice of the proposed amendment.
The LIBOR cessation timeline is directly relevant to VHG's refinancing decision. ICE Benchmark Administration Limited ("IBA"), the administrator of USD LIBOR, has confirmed that it will cease publishing most USD LIBOR tenors (overnight, 1-month, 3-month, 6-month, and 12-month) after June 30, 2023. Had VHG elected not to refinance the Existing TLB, it would have been required to undertake a LIBOR-to-SOFR transition amendment under the Existing Credit Agreement within the next approximately 13 months. Such a transition amendment would have entailed significant operational complexity, legal cost, and execution risk — particularly given the amendment approach's reliance on lender negative consent, which creates the potential for lender hold-up or delay. Refinancing into a SOFR-native facility eliminates the operational and legal risk of a mid-stream benchmark transition under the Existing Credit Agreement and provides VHG with a clean, market-standard documentation framework.
B. The Proposed Crescent Harbor Facility — SOFR-Native
The Proposed TLB is a $700,000,000 Senior Secured Term Loan B credit facility to be provided under a new credit agreement (the "Credit Agreement") with Crescent Harbor Bank, N.A. serving as administrative agent, collateral agent, lead arranger, and sole bookrunner. The facility has been assigned Crescent Harbor internal loan number CHB-LF-2022-07814.
The key economic terms of the Proposed TLB are as follows:
•  Pricing: Adjusted Term SOFR plus an applicable margin of 375 bps, with a SOFR floor of 0.50%.
•  Maturity: July 21, 2029 (a 7-year tenor from the anticipated closing date of July 21, 2022).
•  Amortization: 1.00% per annum, payable quarterly in equal installments of $1,750,000 ($700,000,000 × 1.00% ÷ 4), with the balance due at maturity.
•  Repricing Protection: 1.00% soft call premium for the first 6 months following closing (through January 21, 2023).
•  Original Issue discount ("OID"): 99.50 (50 bps of OID).
The Proposed TLB is being documented as a SOFR-native credit agreement from inception. No LIBOR provisions are included in the Credit Agreement, and no LIBOR-to-SOFR transition mechanics are necessary. The facility will reference Adjusted Term SOFR as its sole floating-rate benchmark from the closing date, with hardwired fallback provisions governing any future transition away from Term SOFR in the event of a cessation or non-representativeness determination.
C. VHG Capital Structure Context
Following the consummation of the refinancing and the payoff of the Existing TLB, VHG's capital structure will be as follows:
•  $700,000,000 Senior Secured Term Loan B (Crescent Harbor Bank, N.A. as administrative agent) — the Proposed TLB;
•  $400,000,000 Senior Secured Revolving Credit Facility (Crescent Harbor Bank, N.A. as administrative agent) — expected to be undrawn at closing; and
•  $245,000,000 Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company as indenture trustee), bearing interest at a fixed rate of 5.375% per annum.
On a pro forma basis at closing, VHG's total net leverage ratio is projected to be approximately 2.52x, calculated as $858,000,000 of net debt (comprising $700,000,000 of term loan debt plus $245,000,000 of unsecured notes less approximately $87,000,000 of unrestricted cash and cash equivalents) divided by $341,000,000 of LTM Adjusted EBITDA (as defined in the Credit Agreement). This leverage level is well within the 4.5x maximum total net leverage ratio applicable under the springing financial covenant in the Revolving Credit Facility (tested only when revolving utilization exceeds 35% of the revolving commitment).
VHG's current corporate credit ratings are BB- from Kellaway Ratings Group and Ba3 from Pinnacle Credit Services. Both rating agencies have indicated that the refinancing transaction is expected to be credit-neutral, as the incremental debt from the upsizing ($700,000,000 versus $625,000,000) is offset by VHG's improved cash flow generation and the interest expense savings resulting from the spread reduction.
III. Adjusted Term SOFR — Definition and Mechanics
A. Term SOFR
The primary benchmark under the Proposed TLB is "Term SOFR," defined in the Credit Agreement as the CME Term SOFR Reference Rate, as published by CME Group Benchmark Administration Limited (the "Term SOFR Administrator"), for the applicable interest period tenor (1-month, 3-month, or 6-month).
Term SOFR is a forward-looking rate that is set at the beginning of each interest period, in a manner analogous to the way forward-looking LIBOR rates were historically set. This operational similarity is one of the primary reasons the leveraged loan market has overwhelmingly adopted Term SOFR as the preferred SOFR variant for syndicated credit facilities. Because Term SOFR is known at the outset of the interest period, the Borrower knows its interest obligation for the full period in advance, which facilitates cash management, budgeting, and financial planning. This characteristic preserves the operational convenience that was familiar to leveraged loan market participants under the LIBOR regime.
Term SOFR is available in three tenors: 1-month, 3-month, and 6-month. Each tenor corresponds to the length of the interest period selected by the Borrower. The rate is derived from SOFR futures markets (specifically, CME 1-month and 3-month SOFR futures contracts) and reflects market expectations of the path of the overnight SOFR rate over the applicable forward period. Term SOFR is published daily by the Term SOFR Administrator, typically by 5:00 a.m. CT, and is available on CME Group's website and through standard market data vendors (Westmark Services Inc., Refinitiv).
It bears noting that the leveraged loan market has overwhelmingly adopted Term SOFR — rather than alternative SOFR formulations such as Daily Simple SOFR or SOFR compounded in arrears — as the primary benchmark for new syndicated term loan facilities. This market consensus reflects the strong preference of loan market participants for a forward-looking term rate that mirrors the operational mechanics of LIBOR. The ARRC has formally recommended Term SOFR for use in business loans where a forward-looking rate is operationally preferable. Crescent Harbor's adoption of Term SOFR in its initial term sheet is consistent with this market standard.
B. SOFR Credit Spread Adjustment (CSA)
Because SOFR is a nearly risk-free rate — it is based on overnight repurchase agreements collateralized by U.S. Treasury securities — while LIBOR historically embedded a bank credit risk component reflecting the cost of unsecured interbank borrowing, a credit spread adjustment is added to Term SOFR to produce "Adjusted Term SOFR." The purpose of the CSA is to make Adjusted Term SOFR more economically comparable to LIBOR, thereby facilitating a more seamless transition for market participants accustomed to LIBOR-based pricing.
The CSAs applied under the Credit Agreement are fixed and permanent values that do not change over time and are not recalculated based on market conditions. They are based on the ISDA five-year historical median spread between USD LIBOR and SOFR, as recommended by the ARRC. The ISDA-calculated exact values and the rounded figures used in the Credit Agreement are as follows:
Note for Ian Blackwood: The Crescent Harbor term sheet uses the rounded CSA figures (0.10%, 0.15%, 0.25%), and the C&H first draft (May 16, 2022) follows this convention. There is a question as to whether to use the rounded figures or the exact ISDA five-year median figures. The rounded figures have become the predominant market convention in leveraged loan documentation, and their use simplifies interest calculations and reduces the risk of computational error. However, the exact ISDA figures are used in certain investment-grade credit facilities and in the ISDA protocol for derivatives. I recommend confirming with WGP that the rounded figures are acceptable to the lender group and proceeding on that basis. This is identified as Open Issue #1 in Section IX below.
The defined term "Adjusted Term SOFR" is calculated as follows:
Adjusted Term SOFR = Term SOFR (for the applicable tenor) + applicable CSA
For example, for a 1-month interest period: Adjusted Term SOFR = 1-month Term SOFR + 0.10%.
It should be noted that certain market participants have begun to omit the CSA entirely from their SOFR-based credit agreements, instead pricing purely on Term SOFR plus a single applicable margin that effectively "bakes in" the spread adjustment. Under this approach, the applicable margin would be set at a level that accounts for the economic difference between SOFR and LIBOR. While this simplification has gained some traction in the investment-grade loan market, the Crescent Harbor approach of separately stating the CSA remains more transparent and is the predominant convention in Term Loan B facilities in the broadly syndicated loan market. The separate statement of the CSA also facilitates cleaner comparisons with LIBOR-based pricing in legacy facilities, which is relevant for market participants (particularly CLO managers and institutional investors) evaluating relative value across their loan portfolios.
C. SOFR Floor
The Credit Agreement provides for a SOFR floor of 0.50% (50 bps). The mechanics are as follows: if the Adjusted Term SOFR for the applicable interest period is less than 0.50%, then for purposes of calculating interest, the Adjusted Term SOFR shall be deemed to be 0.50%. The floor operates as a minimum rate on the benchmark component of the interest rate, ensuring that the benchmark element of VHG's borrowing cost does not fall below 50 bps regardless of how low Term SOFR may decline.
At current rate levels, the SOFR floor is not in-the-money. As of late May 2022, 1-month Term SOFR is trading at approximately 1.45% to 1.50%, and is expected to rise further as the Federal Reserve continues its monetary tightening cycle. The Federal Open Market Committee raised the federal funds rate target range by 50 bps at its May 4, 2022 meeting, to a range of 0.75% to 1.00%, and market expectations (as implied by federal funds futures) suggest further rate increases throughout 2022 and into 2023. Accordingly, the SOFR floor is unlikely to be economically relevant in the near to medium term.
Nevertheless, the floor provides meaningful downside protection for lenders in a future declining rate environment. It is a standard feature of leveraged loan documentation and is expected by institutional investors in the TLB market.
For VHG, the reduction of the floor from 0.75% (under the Existing TLB) to 0.50% (under the Proposed TLB) is a favorable development. In a hypothetical scenario where interest rates decline to near-zero levels, VHG's minimum all-in borrowing cost under the Proposed TLB would be 4.25% (0.50% floor + 375 bps margin), compared to 5.00% (0.75% floor + 425 bps margin) under the Existing TLB — a savings of 75 bps on the floor alone, in addition to the 50 bps reduction in the applicable margin.
Illustrative All-in Rate at Current Levels: Assuming an anticipated closing date of July 21, 2022, and a 1-month Term SOFR rate of approximately 2.29% on that date (based on current market projections), the illustrative all-in interest rate would be calculated as follows:
•  1-month Term SOFR: 2.29%
•  CSA (1-month): + 0.10%
•  Adjusted Term SOFR: 2.39%
•  Applicable Margin: + 3.75%
•  All-in Interest Rate: approximately 6.14% per annum
This compares favorably to the current all-in rate on the Existing TLB, which (assuming 1-month LIBOR of approximately 1.55% as of late May 2022, above the 0.75% floor) is approximately 5.80% (1.55% + 4.25%). While the Proposed TLB's all-in rate is slightly higher on a nominal basis due to the higher benchmark rate, the 50 bps spread reduction will deliver increasing savings as rates continue to rise, since the savings operate on the margin component rather than the benchmark component of the rate.
D. Interest Period Conventions
The Credit Agreement provides for the following interest period conventions:
Available Interest Periods. VHG may elect interest periods of 1-month, 3-month, or 6-month duration, at its option, subject to availability. The election is made by delivering a notice of borrowing (or, for a continuation or conversion, a notice of continuation/conversion) to the Administrative Agent not later than 12:00 p.m. (New York City time) three (3) U.S. Government Securities Business Days prior to the first day of the requested interest period.
Default Interest Period. If VHG fails to timely deliver an interest period election notice, the applicable interest period shall be deemed to be a 1-month interest period. This is a standard default provision designed to ensure continuity of interest accrual without administrative disruption.
Maturity Date Limitation. No interest period may be selected that would extend beyond the maturity date of July 21, 2029. If the last day of an interest period would otherwise fall after the maturity date, the interest period shall end on the maturity date.
Broken Interest Periods. "Broken" interest periods (i.e., interest periods shorter than the standard 1-month, 3-month, or 6-month tenors) are not permitted under ordinary circumstances. The only exception is in connection with voluntary or mandatory prepayments, which may result in a prepayment occurring prior to the last day of an interest period. In such cases, VHG is obligated to pay breakage costs (i.e., funding cost indemnification) to affected lenders for the remainder of the interest period, as discussed further in Section VI.D below.
Interest Payment Dates. Interest is payable on the last day of each interest period. For interest periods longer than three months (i.e., the 6-month tenor), interest is also payable on each date falling three months after the first day of the interest period (i.e., an interim interest payment at the 3-month midpoint of a 6-month interest period). This interim payment convention is standard in leveraged loan documentation and aligns with the quarterly interest payment expectations of institutional lenders.
Business Day Convention. The Credit Agreement employs the Modified Following Business Day Convention. Under this convention, if the last day of an interest period falls on a day that is not a business day, the interest period shall end on the next succeeding business day, unless that next succeeding business day would fall in the next calendar month, in which case the interest period shall end on the immediately preceding business day. This convention prevents interest periods from inadvertently rolling into the next calendar month, which could create complications for accounting and reporting purposes.
IV. Hardwired Benchmark Replacement Fallback Provisions
A. Overview of Approach — "Hardwired" vs. "Amendment" Fallback
The Credit Agreement employs a "hardwired" fallback approach for benchmark replacement, consistent with the ARRC's March 2021 recommended "hardwired fallback" language for syndicated business loans (the "ARRC Hardwired Fallback Language"). Under the hardwired approach, the benchmark replacement rate and associated spread adjustment are predetermined in the Credit Agreement itself, and the transition to the replacement benchmark is triggered automatically upon the occurrence of a defined "Benchmark Transition Event" — without requiring a borrower-agent amendment, lender consent, or any other affirmative action by the parties.
This approach stands in contrast to the "amendment approach" contained in the Existing Greystone Credit Agreement, under which the administrative agent and the Borrower would have been required to negotiate and execute an amendment to the credit agreement to select a replacement benchmark upon a LIBOR cessation event, subject to negative consent of the Required Lenders (with a 5 business day objection period). While the amendment approach was the prevailing convention when the Existing TLB was documented in early 2020, the market has since shifted decisively toward the hardwired approach, driven by ARRC recommendations, regulatory guidance, and the practical experience of market participants navigating the LIBOR transition.
The advantages of the hardwired approach for VHG are significant:
•  Operational Certainty. The replacement benchmark and spread adjustment are known in advance, eliminating uncertainty about the post-transition economic terms.
•  No Risk of Lender Hold-Up. Because no amendment or lender consent is required, there is no risk that individual lenders (or a blocking minority of lenders) could delay or obstruct the benchmark transition, or use the transition as leverage to extract other concessions.
•  Reduced Legal and Administrative Costs. The automatic trigger mechanism eliminates the need for a separate amendment process, reducing legal fees, agent fees, and administrative burden.
•  Consistency Across the Syndicate. All lenders are bound by the same predetermined replacement terms, ensuring uniformity of treatment.
•  Alignment with Regulatory Expectations. The Office of the Comptroller of the Currency ("OCC"), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation ("FDIC") have each issued supervisory guidance encouraging the adoption of hardwired fallback provisions in new loan originations. Crescent Harbor, as a nationally chartered bank, is subject to this guidance.
While the primary benchmark under the Credit Agreement (Term SOFR) is currently available and robust — with deep liquidity in SOFR futures markets and widespread market adoption — the hardwired fallback provisions serve as a contractual safety net in the event of a future cessation or material degradation of Term SOFR. Given that the Proposed TLB has a 7-year tenor (maturing July 21, 2029), it is prudent to include comprehensive fallback provisions that address the possibility, however remote, of a disruption to the Term SOFR benchmark during the life of the facility.
B. Benchmark Transition Events (Triggers)
The hardwired fallback is triggered upon the occurrence of a "Benchmark Transition Event," which is defined in the Credit Agreement to encompass the following circumstances:
1.  Administrator Cessation Announcement. A public statement or publication of information by or on behalf of the administrator of the then-current Benchmark (e.g., CME Group Benchmark Administration Limited, in the case of Term SOFR) announcing that the administrator has ceased or will cease to provide the Benchmark permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Benchmark.
2.  Regulatory Supervisor or Government Authority Announcement. A public statement or publication of information by the regulatory supervisor of the administrator of the then-current Benchmark (e.g., the U.S. Commodity Futures Trading Commission, in the case of CME Group), the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator, a resolution authority with jurisdiction over the administrator, or a court or entity with similar insolvency or resolution authority over the administrator, in each case announcing that (a) the then-current Benchmark is no longer representative, or (b) the administrator has permanently or indefinitely ceased or will permanently or indefinitely cease providing the Benchmark.
3.  Benchmark Replacement Date. A "Benchmark Replacement Date" has occurred, meaning the actual date on which the Benchmark ceases to be published by the administrator or is publicly declared by the regulatory supervisor to be no longer representative. The Benchmark Replacement Date is the date on which the transition to the replacement benchmark becomes effective.
In addition, the Credit Agreement includes a "Pre-Cessation Event" trigger, consistent with ARRC recommendations. Under this provision, if the regulatory supervisor of the Benchmark administrator publicly announces that the Benchmark is no longer representative of the underlying market or economic reality it is intended to measure — even if the Benchmark is still being published by the administrator at the time of such announcement — this declaration constitutes a Benchmark Transition Event and triggers the fallback waterfall. The inclusion of the pre-cessation trigger is important because it addresses the scenario in which a benchmark continues to be published but is no longer considered reliable or representative, as occurred with certain LIBOR settings during the transition period prior to final cessation.
Upon the occurrence of a Benchmark Transition Event, the then-current Benchmark is replaced on the applicable Benchmark Replacement Date in accordance with the waterfall described in Section IV.C below, without the need for any amendment to the Credit Agreement, any consent from any Lender, or any other action by the parties (other than notice from the Administrative Agent to the Lenders and the Borrower).
C. Benchmark Replacement Waterfall
The hardwired fallback provides a sequential waterfall for selecting the replacement benchmark upon the occurrence of a Benchmark Transition Event. The waterfall is designed to identify the most robust and widely accepted replacement rate, with a secondary alternative available in the event that the primary replacement is not available.
First Priority: Daily Simple SOFR. The first replacement benchmark in the waterfall is Daily Simple SOFR, plus the applicable Benchmark Replacement Adjustment (as described in Section IV.D below). Daily Simple SOFR is the overnight Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York ("FRBNY"), applied on a simple (non-compounded) daily basis in arrears. Unlike Term SOFR, which is a forward-looking rate set at the beginning of the interest period, Daily Simple SOFR is a backward-looking overnight rate that accrues daily over the course of the interest period, with the final interest amount determined only at the end of the period (or, in practice, a few business days before the end of the period, depending on the lookback convention employed).
Daily Simple SOFR is considered the most robust SOFR variant because it is based directly on actual overnight SOFR transactions (rather than derived from futures markets, as Term SOFR is). It is the ARRC's first-priority recommended replacement for Term SOFR in the event of Term SOFR cessation and is widely used in the floating-rate note and securitization markets. However, its backward-looking nature represents a change in operational mechanics for the Borrower and the Administrative Agent, as the interest payment amount would not be known with certainty until the end (or near the end) of the interest period. The Benchmark Replacement Conforming Changes authority (discussed in Section IV.F below) is designed to address the operational adjustments necessary to implement Daily Simple SOFR, including lookback periods, rate setting conventions, and payment timing.
Second Priority: Administrative Agent / Borrower Selected Rate. If Daily Simple SOFR is not available (e.g., because the FRBNY has ceased publishing SOFR entirely), the second step of the waterfall provides that the replacement benchmark shall be the sum of (a) an alternate benchmark rate selected by the Administrative Agent (Crescent Harbor) and the Borrower (VHG), giving due consideration to (i) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time, (ii) any selection, endorsement, or recommendation of a replacement benchmark rate by the ARRC, and (iii) any selection or recommendation of a replacement benchmark rate by the Board of Governors of the Federal Reserve System or the FRBNY, plus (b) the applicable Benchmark Replacement Adjustment.
This second-priority step provides flexibility to address an unforeseen scenario in which SOFR itself ceases to be available. The requirement that the Administrative Agent and the Borrower must give "due consideration" to market convention, ARRC guidance, and Federal Reserve recommendations provides a framework for the selection process and constrains the parties' discretion to ensure a market-standard outcome.
Importantly, under the second-priority step, the Administrative Agent and the Borrower may select the replacement benchmark without the consent of the Lenders. This is consistent with the hardwired approach's design principle of minimizing consent requirements and avoiding lender hold-up risk.
D. Benchmark Replacement Adjustment
When a replacement benchmark is implemented under the waterfall described above, a "Benchmark Replacement Adjustment" is applied to the replacement benchmark to account for any spread difference between the replacement benchmark and the replaced benchmark. The purpose of the adjustment is to ensure economic equivalence — that is, to ensure that neither the Borrower nor the Lenders experience a windfall or loss solely as a result of the benchmark transition, independent of any changes in underlying interest rate levels.
The Benchmark Replacement Adjustment varies depending on which step of the waterfall is triggered:
•  For Daily Simple SOFR (First Priority): The spread adjustment is the ISDA-recommended spread adjustment for the applicable tenor, calculated using the same five-year historical median methodology that underlies the CSAs applied to Term SOFR. Because both Term SOFR and Daily Simple SOFR are derived from the same underlying overnight SOFR rate, the spread adjustment for a transition from Term SOFR to Daily Simple SOFR is expected to be minimal. However, to the extent there is any structural difference between the two rates (e.g., due to the term premium embedded in Term SOFR that is absent from Daily Simple SOFR), the adjustment is intended to account for that difference.
•  For Any Other Alternative Benchmark (Second Priority): The spread adjustment is determined by the Administrative Agent and the Borrower, giving due consideration to any spread adjustment selected, endorsed, or recommended by the ARRC or the International Swaps and Derivatives Association, Inc. ("ISDA") for the applicable benchmark replacement.
The Benchmark Replacement Adjustment is added to the replacement benchmark rate to produce the "Benchmark Replacement" rate, which then functions as the new benchmark under the Credit Agreement in place of the prior Adjusted Term SOFR rate. The applicable margin of 375 bps and the SOFR floor of 0.50% continue to apply to the Benchmark Replacement in the same manner as they applied to Adjusted Term SOFR.
E. Benchmark Unavailability Period
The Credit Agreement includes separate provisions governing temporary benchmark unavailability — situations in which the applicable Benchmark (Term SOFR) is temporarily unavailable on a rate-setting date, but no Benchmark Transition Event has occurred. This addresses the scenario where, for example, the Term SOFR Administrator experiences a temporary publication delay or technical disruption that prevents the timely publication of Term SOFR, but the disruption is not indicative of a permanent cessation or non-representativeness determination.
During a "Benchmark Unavailability Period," the following provisions apply:
•  Interest on all outstanding Term SOFR-based loans accrues at the Base Rate, as defined in the Credit Agreement. The "Base Rate" is defined as the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Administrative Agent's publicly announced prime rate, and (c) Adjusted Term SOFR for a 1-month interest period plus 1.00%, in each case as in effect from time to time.
•  VHG may not elect a new interest period that would reference the temporarily unavailable Benchmark. Any pending interest period election that references the unavailable Benchmark shall be deemed to be an election of a Base Rate loan.
•  Once the Benchmark becomes available again (i.e., the Term SOFR Administrator resumes publication of Term SOFR), VHG may resume selecting SOFR-based interest periods in the ordinary course.
The Benchmark Unavailability Period provisions are designed to provide a seamless interim solution for temporary disruptions without triggering the full benchmark replacement waterfall, which is reserved for permanent or indefinite cessation events.
F. Conforming Changes
The Credit Agreement grants the Administrative Agent (Crescent Harbor) broad authority to make "Benchmark Replacement Conforming Changes" without Lender consent, in consultation with the Borrower (VHG). This authority is critical to ensuring that the operational mechanics of the Credit Agreement can be adapted as necessary to accommodate the replacement benchmark.
The scope of Benchmark Replacement Conforming Changes includes, but is not limited to, adjustments to the following:
•  The definition of "Business Day" — which may need to be modified to reference "U.S. Government Securities Business Days" (the convention for SOFR-based transactions) rather than "London Banking Days" (a legacy LIBOR convention, though not applicable here given the SOFR-native structure).
•  The definition of "Interest Period" — which may need to be adjusted to accommodate different rate-setting mechanics (e.g., lookback periods for backward-looking rates like Daily Simple SOFR).
•  The timing and frequency of rate determinations and notifications — if the replacement benchmark is a backward-looking rate, the rate determination will occur at or near the end of the interest period rather than at the beginning.
•  Interest payment dates — which may need to be adjusted to accommodate the different rate-setting mechanics of the replacement benchmark.
•  Lookback period mechanics — if the replacement benchmark is Daily Simple SOFR, a lookback period (typically 2 or 5 U.S. Government Securities Business Days) is necessary to allow the Administrative Agent time to calculate the interest amount before the payment date.
•  Rounding conventions — which may differ for the replacement benchmark.
•  Any other technical, operational, or administrative matters that the Administrative Agent determines are reasonably necessary to reflect the adoption and implementation of the Benchmark Replacement in a manner substantially consistent with market practice (or, if the Administrative Agent determines there is no substantially similar market practice, in such other manner as the Administrative Agent determines is reasonably necessary in connection with the administration of the Credit Agreement).
Lenders will be promptly notified by the Administrative Agent of any Benchmark Replacement Conforming Changes, but Lenders do not have consent, approval, or objection rights with respect to such changes. This allocation of authority is consistent with the ARRC's recommended hardwired fallback language and reflects the operational reality that conforming changes are administrative in nature and are best handled by the Administrative Agent in coordination with the Borrower, rather than subjected to a potentially time-consuming lender consent process.
V. Comparison to the Existing Greystone Facility
This section provides a detailed comparison of the benchmark-related provisions in the Existing TLB (Greystone) and the Proposed TLB (Crescent Harbor).
A. Benchmark
Existing (Greystone): USD LIBOR (ICE LIBOR), as published by IBA — a forward-looking, term rate, set at the beginning of each interest period based on submissions from panel banks reflecting their cost of unsecured interbank borrowing.
New (Crescent Harbor): Adjusted Term SOFR (CME Term SOFR + CSA) — also a forward-looking, term rate, set at the beginning of each interest period based on SOFR futures markets reflecting market expectations of overnight secured financing rates.
Practical Impact: From an operational perspective, the transition from LIBOR to Adjusted Term SOFR is relatively seamless for VHG's treasury function. Both benchmarks are forward-looking term rates with fixings determined at the start of each interest period, so the timing and mechanics of interest rate determination are substantially similar. Glenn Fischbach (VHG Treasurer) and VHG's cash management systems should experience minimal disruption in the transition. The primary change is the source of the rate data (CME Group rather than ICE) and the addition of the CSA component, which is a fixed value that does not require any ongoing calculation or monitoring.
B. Spread / Margin
Existing: LIBOR + 425 bps
New: Adjusted Term SOFR + 375 bps
Net Spread Reduction: 50 bps
It should be noted that the CSA embedded in Adjusted Term SOFR (0.10% for a 1-month interest period) partially offsets the nominal 50 bps spread reduction on a purely arithmetic basis. However, SOFR itself is a nearly risk-free rate that historically has traded approximately 10 to 15 bps below LIBOR, consistent with the ISDA-calculated CSA values. The CSA is designed to bridge this structural difference, so the "like-for-like" economic benefit to VHG is approximately 50 bps of genuine spread savings, not merely a repackaging of the same economics in a different rate format.
Estimated Annual Interest Savings: Approximately $3,500,000 per annum, calculated as $700,000,000 × 0.50%. Over the 7-year term of the facility (assuming the full principal balance remains outstanding), the aggregate interest savings would be approximately $24,500,000 on an undiscounted basis, subject to reduction as amortization reduces the outstanding principal balance.
C. Floor
Existing: LIBOR floor of 0.75%
New: SOFR floor of 0.50%
The 25 bps reduction in the floor provides an additional benefit to VHG in a declining rate environment. The SOFR floor is applied to Adjusted Term SOFR (i.e., after the addition of the CSA), so in a scenario where Adjusted Term SOFR falls below 0.50%, the minimum all-in rate would be 4.25% (0.50% deemed Adjusted Term SOFR + 375 bps margin), compared to a minimum all-in rate of 5.00% (0.75% deemed LIBOR + 425 bps margin) under the Existing TLB.
D. Fallback Mechanics
Existing (Greystone): Amendment approach — upon a LIBOR cessation event, the administrative agent and the Borrower may negotiate and execute an amendment to select a replacement benchmark rate, subject to negative consent of Required Lenders (50% threshold) with a 5 business day objection period following delivery of notice.
New (Crescent Harbor): Hardwired approach — a predetermined sequential waterfall (Daily Simple SOFR first, then an agent/borrower-selected rate) triggers automatically upon a Benchmark Transition Event, without requiring any amendment, lender consent, or affirmative action by the parties.
The hardwired approach is clearly superior for VHG because it eliminates the execution risk and lender hold-up risk inherent in the amendment approach. Under the amendment approach, there is always a risk that a sufficient number of lenders could object to the proposed replacement rate (or fail to respond within the objection period, creating uncertainty), or that individual lenders could use the amendment process as leverage to seek other changes to the credit agreement. The hardwired approach avoids these risks entirely.
E. Summary Comparison Table
VI. Interaction with Other Credit Agreement Provisions
The SOFR benchmark mechanics interact with several other provisions of the Credit Agreement that warrant careful attention during the documentation process.
A. Repricing Protection / Soft Call
The Credit Agreement includes a 6-month repricing protection period running from the closing date (July 21, 2022) through January 21, 2023. During this period, any repricing of the Proposed TLB at a lower "effective yield" — whether through an amendment, a refinancing with replacement term loans, or an incremental equivalent transaction — requires payment of a 1.00% prepayment premium on the principal amount of the loans that are repriced or refinanced.
The definition of "effective yield" is critical to the operation of this provision. As currently drafted in the C&H first draft, "effective yield" is defined to include the applicable margin, the SOFR floor, and OID (amortized over a 4-year assumed life), but excludes the CSA and upfront arrangement fees. This treatment is consistent with market convention, as the CSA is a structural component of the benchmark (designed to bridge the LIBOR-SOFR spread differential) rather than a borrower-specific pricing element.
Action Item: We should confirm this definition of "effective yield" with WGP (Harrison Whitfield III and Megan Yeung) during credit agreement negotiations to ensure alignment between the Borrower and the Administrative Agent on the treatment of the CSA and upfront fees.
Additionally, if the Benchmark is replaced by a different rate under the hardwired fallback provisions during the repricing protection period (a remote but theoretically possible scenario), the effective yield calculation should be adjusted to ensure that the repricing protection is not inadvertently triggered — or rendered inapplicable — solely due to a change in the underlying benchmark. The C&H first draft addresses this by providing that effective yield comparisons shall be made on a like-for-like basis (i.e., both the initial TLB yield and the repriced yield shall be calculated using the same benchmark), but this provision should be reviewed for clarity.
B. Most Favored Nation (MFN) Provision
The Credit Agreement includes a Most Favored Nation ("MFN") provision applicable to incremental term loans. Under this provision, if VHG incurs incremental term loans with an effective yield that exceeds the effective yield on the initial TLB by more than 50 bps (the "MFN threshold"), the applicable margin on the initial TLB shall be increased to the level necessary to reduce the yield differential to 50 bps. The MFN provision is subject to an 18-month sunset, expiring on January 21, 2024 (18 months after the closing date).
The yield comparison for MFN purposes must be conducted on a consistent benchmark basis. That is, the "yield" on both the initial TLB and any incremental term loan should be calculated using the same benchmark (i.e., both using Adjusted Term SOFR, or, if a benchmark replacement has occurred under the hardwired fallback, both using the replacement benchmark). This ensures that any yield differential is attributable to genuine differences in pricing (margin, floor, OID) rather than to structural differences between benchmarks.
The Credit Agreement should include explicit language ensuring that a benchmark transition under the hardwired fallback does not create an artificial yield differential that would inadvertently trigger the MFN adjustment, or conversely, that a borrower cannot engineer a benchmark mismatch to avoid MFN application. The C&H first draft includes a provision to this effect, but the drafting should be reviewed during negotiations to ensure it is sufficiently clear and comprehensive.
C. Default Rate
The Credit Agreement provides for a default rate of interest equal to the otherwise applicable rate plus 200 bps per annum, applicable upon the occurrence and during the continuance of an Event of Default (and, in the case of overdue payments, automatically upon such payments becoming overdue).
The default rate applies to the full Adjusted Term SOFR-based rate, including the CSA and the applicable margin. Accordingly, the default rate would be calculated as follows:
Adjusted Term SOFR + 375 bps (applicable margin) + 200 bps (default premium) = Adjusted Term SOFR + 575 bps
Using the illustrative rate from Section III.C above (Adjusted Term SOFR of 2.39% as of the anticipated closing date), the illustrative default rate would be approximately 8.14% per annum.
D. Amortization and Prepayment Mechanics
Amortization. The Proposed TLB amortizes at a rate of 1.00% per annum, payable in equal quarterly installments of $1,750,000 ($700,000,000 × 1.00% ÷ 4). This amortization is expressed as a fixed dollar amount and is not affected by the benchmark mechanics or any benchmark transition.
Voluntary Prepayments. After the expiration of the 6-month soft call period on January 21, 2023, VHG may prepay the Proposed TLB at par (i.e., 100% of the principal amount being prepaid), plus accrued and unpaid interest and any applicable breakage costs. During the soft call period (from closing through January 21, 2023), voluntary prepayments in connection with a repricing transaction require payment of the 1.00% prepayment premium described in Section VI.A above.
Breakage Costs. If VHG prepays a SOFR-based loan on a date other than the last day of the applicable interest period, VHG is obligated to indemnify the affected Lenders for any breakage or funding losses they incur as a result of the prepayment. Breakage costs are calculated based on the difference between the SOFR rate applicable to the prepaid loan for the remainder of the broken interest period and the rate at which the Lender could reinvest the prepaid funds for such remaining period. This is a standard "make-whole" for funding losses and is not materially different from the breakage cost provisions applicable to LIBOR-based loans under the Existing TLB.
VII. ARRC Compliance and Regulatory Considerations
The proposed SOFR provisions in the Credit Agreement are consistent with the ARRC's Updated Recommended Best Practices, most recently issued in January 2022, for new USD LIBOR loan originations. The ARRC has recommended that all new U.S. dollar-denominated loan originations use SOFR (or another alternative reference rate) rather than USD LIBOR, and that all SOFR-based loan documentation include hardwired fallback provisions. The Proposed TLB complies with both of these recommendations.
Federal banking regulators have also issued guidance encouraging the adoption of SOFR-based lending and hardwired fallback provisions. Specifically:
•  The Board of Governors of the Federal Reserve System, the OCC, and the FDIC jointly issued supervisory guidance in November 2020 (SR Letter 20-27 / OCC Bulletin 2020-98) encouraging supervised institutions to cease entering into new LIBOR-based contracts as soon as practicable, and in any event by December 31, 2021.
•  The OCC issued additional guidance in March 2021 emphasizing the importance of robust fallback language in SOFR-based contracts and encouraging the use of the ARRC's hardwired fallback approach.
•  The Federal Reserve's supervision teams have incorporated LIBOR transition preparedness into their examination priorities, and supervised institutions (including Crescent Harbor) are expected to demonstrate that new loan originations reference alternative reference rates with appropriate fallback provisions.
VHG's and Crescent Harbor's adoption of the hardwired fallback approach in the Proposed TLB aligns fully with these regulatory expectations.
Additionally, the New York State LIBOR Legislation — codified as New York General Obligations Law, Article 18-C, which became effective in April 2022 — provides a statutory fallback mechanism for contracts governed by New York law that reference USD LIBOR and do not contain a clearly defined and practicable fallback mechanism. Under the statute, upon a LIBOR cessation event, the "recommended benchmark replacement" (defined as the SOFR-based rate recommended by the Federal Reserve Board or the FRBNY, plus the applicable ISDA spread adjustment) automatically replaces LIBOR by operation of law. Because the proposed Credit Agreement is SOFR-native from inception and includes a comprehensive hardwired fallback, the New York LIBOR Legislation is not directly applicable. Nevertheless, the existence of this legislation provides additional comfort that the legal infrastructure in New York (the governing law jurisdiction of the Credit Agreement) supports and facilitates SOFR-based contracts and benchmark replacement mechanisms.
VIII. Practical Implementation Considerations for VHG
A. Treasury Systems
VHG's treasury function, led by Glenn Fischbach (Treasurer), should take the following steps to prepare for the transition from LIBOR-based pricing to Adjusted Term SOFR pricing:
•  Rate Source Update. VHG's interest rate tracking and cash management systems should be updated to reference CME Term SOFR as the applicable benchmark, rather than ICE LIBOR. Term SOFR rates are published daily by CME Group Benchmark Administration Limited and are available through the CME Group website, Westmark Services Inc. (ticker: TSFR1M, TSFR3M, TSFR6M for 1-month, 3-month, and 6-month tenors, respectively), and Refinitiv. VHG should confirm that its treasury management system (or the third-party platform it utilizes) can source CME Term SOFR rates automatically and integrate them into interest calculation and forecasting models.
•  CSA Integration. VHG's systems should be configured to add the applicable fixed CSA (0.10% for 1-month, 0.15% for 3-month, 0.25% for 6-month) to the Term SOFR rate to derive the Adjusted Term SOFR, which is the benchmark used for interest calculations under the Credit Agreement.
•  Day Count Convention. The interest calculation methodology under the Proposed TLB is actual/360, which is the same day count convention used for LIBOR-based loans under the Existing TLB. Accordingly, no adjustment to VHG's interest calculation systems is needed in this respect.
B. Hedging Implications
If VHG has existing LIBOR-based interest rate hedging instruments (such as interest rate caps or swaps) that were entered into in connection with the Existing Greystone TLB, those hedging instruments will need to be addressed in connection with the refinancing. Specifically:
•  Existing Hedges. Any LIBOR-based hedges should be unwound, novated, or amended to reference SOFR, in coordination with the relevant hedge counterparties. If the existing hedges are subject to ISDA Master Agreements that have been amended to incorporate the ISDA IBOR Fallbacks Protocol or the IBOR Fallbacks Supplement, the transition from LIBOR to SOFR may occur automatically under the terms of those amendments upon LIBOR cessation. However, if the refinancing occurs before LIBOR cessation (as is expected), the hedges may need to be unwound or restructured proactively to align with the new TLB.
•  New Hedges. If VHG desires to hedge the interest rate exposure on the Proposed TLB (e.g., through an interest rate cap or a pay-fixed/receive-floating swap), any new hedging instruments should reference SOFR (specifically, overnight SOFR compounded in arrears, which is the standard for SOFR-based derivatives) to ensure a close match with the underlying loan benchmark. While there will be some basis risk between Term SOFR (the loan benchmark) and overnight SOFR compounded in arrears (the derivatives benchmark), this basis risk is generally considered manageable and has been accepted by the market. The SOFR derivatives market is deep and liquid, with significant trading volumes in SOFR-based swaps and options.
•  Advisory Coordination. VHG should coordinate with its financial advisor, Meridian Strauss Advisory LLC (Elise Cavanaugh), on the hedging strategy for the Proposed TLB, including the timing of unwinding existing hedges and the execution of any new hedging transactions.
C. Existing RCF Coordination
VHG's existing $400,000,000 Senior Secured Revolving Credit Facility, with Crescent Harbor Bank, N.A. as administrative agent, is a critical element of VHG's overall capital structure and liquidity profile. In connection with the refinancing of the TLB, the following coordination matters should be addressed:
•  Benchmark Alignment. We should confirm whether the existing RCF has already transitioned to SOFR-based pricing or remains LIBOR-based. If the RCF is still LIBOR-based, VHG should coordinate with Crescent Harbor to align the benchmark across both the RCF and the new TLB to simplify treasury operations, compliance monitoring, and internal reporting. Benchmark alignment would also reduce basis risk if VHG enters into hedging arrangements that cover exposure under both facilities.
•  Intercreditor Agreement. The Amended and Restated Intercreditor Agreement, which is expected to be executed at closing on July 21, 2022 among Crescent Harbor (as RCF agent and TLB agent), should account for the possibility that the RCF and the TLB may reference different benchmarks during any interim transition period (if the RCF has not yet been amended to reference SOFR). The intercreditor agreement should also address the treatment of benchmark replacement events under the hardwired fallback, including any potential timing differences between benchmark transitions under the two facilities.
•  Administrative Simplification. Given that Crescent Harbor serves as administrative agent under both the RCF and the TLB, there is a natural opportunity to coordinate benchmark alignment and administrative processes across the two facilities. We should discuss with Crescent Harbor's agency team whether a concurrent amendment to the RCF (to transition to SOFR, if not already done) would be feasible and desirable in connection with the TLB closing.
IX. Open Issues and Recommendations
The following open issues should be addressed during the upcoming negotiation sessions with WGP and resolved prior to finalization of the Credit Agreement:
1. CSA Rounding Convention. Confirm with WGP (Harrison Whitfield III) that the rounded CSA figures (0.10%, 0.15%, 0.25%) are acceptable to the lender group. The alternative would be to use the exact ISDA five-year historical median figures (0.11448%, 0.26161%, 0.42826%). While the exact figures could be argued to be more precise, the rounded figures have become the overwhelmingly prevalent convention in leveraged loan documentation and are easier to administer. Recommendation: Use the rounded figures.
2. Term SOFR Screen Reference. Confirm the specific Westmark Services Inc. screen page, Calderon Health IT screen page, or CME Group website URL to be referenced in the Credit Agreement as the authoritative source for determining Term SOFR rates. The C&H first draft currently references the CME Group website (https://www.cmegroup.com/market-data/cftc-reporting/sofr.html) as the primary source, with Westmark Services Inc. as a secondary source. We should confirm with Crescent Harbor's operations team that this is consistent with their administrative systems and standard practice.
3. Conforming Changes Authority. The current draft of the Credit Agreement grants the Administrative Agent broad authority to make Benchmark Replacement Conforming Changes in consultation with the Borrower but without Lender consent. This allocation of authority is favorable to VHG, as it allows necessary operational adjustments to be made efficiently without the delay and uncertainty of a lender consent process. We anticipate that WGP may request, on behalf of the lender group, that "Required Lender" consent (or at least negative consent with a 5 business day objection period) be required for certain categories of Conforming Changes — particularly those that could affect the economic terms of the loans (e.g., changes to interest calculation methodology or payment frequency). Recommendation: Resist any expansion of lender consent rights over Conforming Changes. The ARRC's recommended hardwired fallback language does not contemplate lender consent for conforming changes, and introducing such a requirement would undermine the efficiency benefits of the hardwired approach. If WGP insists on some form of lender involvement, a narrow negative consent right (limited to conforming changes that would materially alter the economic terms of the loans) may be an acceptable compromise, but we should strongly advocate for the current formulation.
4. Benchmark Replacement Adjustment for Daily Simple SOFR. If Daily Simple SOFR becomes the replacement benchmark under the first step of the waterfall, confirm whether the CSA currently applied to Term SOFR (0.10% for 1-month, etc.) is carried forward as the Benchmark Replacement Adjustment, or whether a separate, independently calculated adjustment is applied. The C&H first draft references the ISDA-recommended spread adjustment for the applicable tenor, which is based on the same five-year historical median methodology as the Term SOFR CSA but may differ slightly from the rounded CSA figures used for Term SOFR. There is a potential for a small economic mismatch if the rounded CSAs used for Term SOFR differ from the ISDA-recommended adjustments used for Daily Simple SOFR. Recommendation: For consistency and simplicity, consider specifying that the Benchmark Replacement Adjustment for Daily Simple SOFR shall be the same rounded CSA figures used for Adjusted Term SOFR (i.e., 0.10%, 0.15%, 0.25%), rather than cross-referencing the ISDA protocol. Alternatively, if the exact ISDA figures are used for the Benchmark Replacement Adjustment, ensure that the economic impact of the difference is understood and acceptable to both parties.
5. Yield Definition Alignment. Ensure that the definitions of "yield" and "effective yield" used in the MFN provision (Section 2.14 of the C&H first draft) and the repricing protection provision (Section 2.05(b)) are drafted consistently with the SOFR benchmark framework. In particular, these definitions should: (a) specify that the CSA is excluded from the yield calculation (consistent with market convention); (b) provide that yield comparisons between the initial TLB and any incremental term loan or repriced loan shall be made on a like-for-like benchmark basis; and (c) include a mechanism to ensure that a benchmark replacement event under the hardwired fallback does not create an artificial yield differential that would inadvertently trigger or defeat the MFN or repricing protection

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