Jonathan,
Thanks for turning comments on the Issues List so quickly. I wanted to follow up on our marked third draft of the Credit Agreement circulated on March 18 (credit-agreement-sc-marked-draft-3.docx) and the updated Issues List v3.0 that Sophie sent around yesterday (credit-agreement-issues-list-v3.xlsx) to lay out where we see the remaining open points and our proposed path to resolution on each.
First, I think we're in very good shape overall — the vast majority of issues from earlier rounds have been resolved, and the third draft is substantially agreed. That said, we do have a final handful of items that need to be closed out before we can move the document to execution-ready form, which we're targeting for end of day Monday, March 24. As you know, we have a March 28 closing date, and we'll need the credit agreement substantially final to support the last wave of general syndication commitments (approximately $400 million still out in the market, with syndicate lender commitments due tomorrow, March 21). We'd like to be in a position to begin circulating signature pages by March 25 at the latest.
Below are the seven remaining open items, with our proposed resolution for each:
**1. Adjusted EBITDA Definition — Permitted Add-Backs Cap**
As you know, Nexford's LTM Adjusted EBITDA of $385 million includes approximately $28 million in permitted add-backs over LTM reported EBITDA of $357 million — broken down as $12 million in acquisition-related costs, $8.5 million in non-recurring restructuring charges, $4.5 million in sponsor management fees, and $3 million in integration costs. We understand Crescent Harbor's desire to cap aggregate add-backs, and we appreciate the dialogue on this point.
However, a cap that does not provide adequate headroom will be problematic given Nexford's demonstrated bolt-on acquisition strategy — the company has completed four acquisitions since 2021 (Clearfield Tool & Die, Summit Industrial Fabrication, Ridgepoint Specialty Coatings, and Lakeshore Precision Engineering), and the pipeline remains active. The 15% floor Nexford has proposed would accommodate approximately $57.75 million based on current Adjusted EBITDA, but we think the right landing spot — and one that is consistent with recent market precedent for sponsor-backed TLB transactions — is a cap on pro forma cost savings, synergies, and non-recurring adjustments at **25% of Consolidated EBITDA** for the applicable test period. This provides appropriate flexibility for future acquisition and restructuring activity while still giving lenders a meaningful ceiling. We'd ask that you take this to your client and confirm it works.
**2. Incremental Facility — Most Favored Nation Provision Sunset and Threshold**
We're aligned on the 50 basis point MFN threshold — the spread on the initial Term Loan B (SOFR + 400 bps) will be increased to within 50 bps of any incremental facility priced at a higher spread. The remaining open issue is the sunset period. Your third draft has the MFN protection applying to incremental term loans incurred within the first **18 months** after closing. Our marked draft reflects a **12-month** sunset, which is what was agreed in the commitment letter and term sheet and is consistent with market standard.
Our position is that the 12-month sunset should not be reopened — it was negotiated and agreed at the term sheet stage, and we don't think there's a basis for extending it at the definitive documentation phase. We'd propose we lock this at 12 months as reflected in the term sheet.
Separately, and as noted in our marked draft, the MFN provision should include a customary carve-out for incremental loans incurred in connection with a permitted acquisition where aggregate commitments do not exceed a threshold to be agreed. Happy to discuss the right dollar figure for that carve-out, but the concept should be included.
**3. Excess Cash Flow Sweep — Definition of "Excess Cash Flow" and Netting Items**
The step-down thresholds and percentages for the ECF sweep are agreed (50% above 4.25x first lien net leverage, stepping down to 25% at or below 4.25x, and 0% at or below 3.50x). The remaining issue is the definition of "Excess Cash Flow" itself — specifically, the treatment of certain netting items:
- **(a) Voluntary prepayments of the Term Loan B:** We agree these should reduce ECF dollar-for-dollar, and your third draft reflects this. No open issue here.
- **(b) Cash restructuring charges and integration costs actually paid:** Your third draft caps this deduction at $10 million per fiscal year. Given the ongoing integration of Lakeshore Precision Engineering and Nexford's continued bolt-on activity, Nexford's view is that $10 million is too tight and has proposed $15 million. As a compromise, we'd propose a cap of **$12.5 million per fiscal year**, with a **carryforward of unused amounts up to $5 million** into the next succeeding fiscal year. We think this is a reasonable middle ground that addresses Crescent Harbor's desire for a cap while giving the company adequate room during periods of active integration.
- **(c) Capital expenditures funded from internally generated cash flow:** Agreed — not in dispute.
**4. Restricted Payments — Builder Basket Mechanics**
The economics of the builder basket are agreed: 50% of cumulative consolidated net income from Q1 2025, plus a $50 million starter basket, plus a $25 million annual general basket, plus unlimited restricted payments subject to pro forma compliance with 3.75x total net leverage. The open issue is the Event of Default blocker applicable to the builder basket.
Your third draft requires that no Event of Default (of any kind) shall have occurred and be continuing at the time of any restricted payment utilizing the builder basket. Our position is that a full no-EoD blocker is overly restrictive for a builder basket in a TLB transaction. We'd propose that builder basket usage be subject only to (i) no **Payment Default** and (ii) no **Event of Default under the bankruptcy/insolvency provisions** (Sections [__] — cross-references to be confirmed in the final draft). A limited EoD blocker of this type is standard for builder baskets in sponsor-backed leveraged credit facilities.
To be clear, we have no issue with the unlimited RP basket (at pro forma 3.75x total net leverage) being subject to a full no-EoD blocker — that's fine and is agreed. The dispute is limited to the builder basket.
**5. Change of Control Definition — "Acting in Concert" / "Group" Language**
Your third draft includes "acting in concert" language in the definition of "group" within the change of control provision that goes beyond the Exchange Act Section 13(d) definition. Our position is that "group" should be defined solely by reference to **Section 13(d)(3) of the Securities Exchange Act of 1934**, which is the market standard formulation for change of control provisions in leveraged credit agreements. The "acting in concert" overlay introduces ambiguity and potential for disputes that the 13(d)(3) standard was designed to avoid. We'd ask that the "acting in concert" language be deleted.
Additionally, please confirm that the Granite Peak exclusion covers Granite Peak Capital Partners, LP, its affiliated funds (including Granite Peak Capital Fund IV, LP and GP Fund IV Co-Invest, LP), their respective general partners (Granite Peak Capital GP IV, LLC), and any successor funds — all as reflected in our marked third draft. The change of control trigger remains at acquisition by any person or group (other than the Granite Peak parties) of more than 35% of the voting equity of Granite Peak NIH Holdings, LLC, or Nexford ceasing to be a direct wholly-owned subsidiary of Holdings, or a change of control under the Senior Unsecured Notes Indenture (the indenture dated November 8, 2021, with Pinnacle Trust Company as trustee, governing the $250 million 7.250% Senior Unsecured Notes due 2028).
**6. Post-Closing Covenant — Mortgage Delivery Deadline**
The credit agreement requires post-closing delivery of mortgages and title insurance policies for the four mortgaged properties:
- 1400 Industrial Parkway, Schaumburg, IL (Cook County) — appraised value $85 million - 2750 Commerce Drive, Rockford, IL (Winnebago County) — appraised value $42 million - 600 Manufacturers Row, Greenville, SC (Greenville County) — appraised value $38 million - 9100 Westpark Industrial Boulevard, Houston, TX (Harris County) — appraised value $28 million
Total appraised real property collateral: $193 million.
Your third draft sets the post-closing deadline at 30 days after closing (April 27, 2025). Frankly, that's very tight given the need to coordinate title work with Landmark Title Assurance Company across four jurisdictions, obtain updated surveys, and navigate mortgage recording requirements in Cook County, Winnebago County, Greenville County, and Harris County. Our position has been 60 days (May 27, 2025).
As a compromise, we'd propose **45 calendar days after closing** (approximately May 12, 2025), with an **additional 15-day grace period** upon delivery of a certificate from the Borrower confirming that it has been using good-faith efforts to complete the mortgage deliverables — effectively providing up to 60 days if needed while establishing a 45-day initial target. We think this is a practical and reasonable landing spot, and it's not far from the approximately 33-day deadline in the prior draft (April 30, 2025). We'd accept 45 days as a clean compromise if Crescent Harbor prefers to avoid the grace period mechanic.
**7. Sanctions / Anti-Corruption Representations — Knowledge Qualifier for Agents and Representatives**
This is a minor drafting point but one we want to clean up. The "to the knowledge of the Loan Parties" qualifier for agents in the Sanctions/OFAC representations is agreed in principle. However, your third draft applies the knowledge qualifier only to "agents" and not to "representatives." Our position is that "representatives" — which could include independent contractors, brokers, and distributors — should also be covered by the knowledge qualifier, as the Borrower cannot reasonably be expected to make unqualified representations about third-party representatives over whom it does not exercise direct control.
We'd propose that the operative language read: *"...or, to the knowledge of the Loan Parties, any agent or representative of any Loan Party..."*
Similarly, please confirm that the anti-corruption representation (FCPA, anti-money laundering / USA PATRIOT Act, Bank Secrecy Act) uses parallel knowledge qualifiers for agents and representatives. We want to make sure the two provisions are consistent.
* * *
Jonathan, I think the above covers everything that's still outstanding. If Crescent Harbor can agree to the positions outlined above — or if you have counterproposals on any of these — please let us know as soon as practicable. If it would be helpful to get Claudia and Margaret on a call, or to loop in Elaine Prescott at Crescent Harbor directly on any of these points, we're happy to set that up. Sophie and I are available for a call tomorrow (Friday, March 21) or early Monday, March 24, if that works on your end.
The goal remains a fully agreed, execution-ready credit agreement by end of day Monday, March 24, signature page circulation on March 25, and closing on March 28. I think we can get there if we can resolve this final set of issues in the next day or two.
Thanks as always for the collaborative approach on this — appreciate it.
Best regards,
Marcus
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**Marcus Leung** Associate, Banking & Finance **Calderwood & Harkness LLP** 425 Lexington Avenue New York, New York 10017 T: (212) 555-8374 E: mleung@calderwoodharkness.com
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