PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 425 Lexington Avenue New York, New York 10017
MEMORANDUM
February 12, 2025
TO: Claudia Merritt, Partner, Banking & Finance
FROM: Marcus Leung, Associate, Banking & Finance
RE: Review of Existing Credit Agreement and Amendments — Nexford Industrial Holdings Inc.
MATTER NO.: 1005-00001
CLIENT/MATTER CODE: IBL-NIH-2025-031
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I. Purpose and Scope
The purpose of this memorandum is to summarize the material terms of the existing credit facilities of Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower") and to identify provisions relevant to the proposed $1,400,000,000 senior secured Term Loan B refinancing and dividend recapitalization transaction. This memorandum is intended to serve as a reference document for the deal team as we negotiate and draft the definitive documentation for the proposed transaction and coordinate the closing mechanics with all relevant parties.
In preparing this memorandum, I have reviewed the following documents:
(a) Credit Agreement dated as of June 14, 2019 (the "Original Credit Agreement"), among Nexford Industrial Holdings Inc., as Borrower, the Guarantors party thereto, Atlas Meridian Bank, N.A., as Administrative Agent and Collateral Agent, and the Lenders party thereto;
(b) First Amendment to Credit Agreement, dated as of March 20, 2020 (the "First Amendment");
(c) Second Amendment to Credit Agreement, dated as of November 8, 2021 (the "Second Amendment");
(d) Third Amendment to Credit Agreement, dated as of April 15, 2023 (the "Third Amendment"); and
(e) Fourth Amendment to Credit Agreement, dated as of September 12, 2024 (the "Fourth Amendment" and, together with the Original Credit Agreement, the First Amendment, the Second Amendment, and the Third Amendment, the "Existing Credit Agreement").
By way of context, the proposed transaction contemplates the refinancing and full repayment of the existing first lien term loan and revolving credit facility under the Existing Credit Agreement, using the proceeds of a new $1,400,000,000 Term Loan B to be arranged by Crescent Harbor Bank, N.A. (the "New Term Loan B"). After repayment of the existing facilities and payment of transaction fees and expenses, the remaining proceeds of the New Term Loan B (net of fees) will fund an approximately $335,000,000 dividend recapitalization to Granite Peak NIH Holdings, LLC ("Holdings") and its equity holders. The anticipated closing date for the proposed transaction is March 28, 2025.
This memorandum addresses the material terms of the Existing Credit Agreement that bear on the mechanics, feasibility, and legal risk of the proposed refinancing and dividend recapitalization. I have organized the discussion by subject matter and have included specific recommendations and open items for the deal team's consideration. Please note that certain detailed terms (particularly numerical covenant levels and basket amounts) remain subject to confirmation upon further detailed review of the full executed copies of the amendments, and I have flagged these items throughout.
II. Overview of the Existing Credit Facilities
A. Parties
Borrower. The Borrower under the Existing Credit Agreement is Nexford Industrial Holdings Inc., a corporation organized and existing under the laws of the State of Delaware, EIN 36-4178552, with its principal executive offices located at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford is a diversified industrial manufacturing company with operations in precision components, engineered systems, coatings and surface technologies, and related manufacturing services.
Administrative Agent and Collateral Agent. Atlas Meridian Bank, N.A., a national banking association headquartered at 500 Liberty Avenue, Pittsburgh, Pennsylvania 15222, serves as both Administrative Agent and Collateral Agent under the Existing Credit Agreement. The primary contact for purposes of payoff, lien release, and related administrative matters is Sandra Vickers, Managing Director, Portfolio Management. We have had preliminary communications with Ms. Vickers's office regarding the anticipated refinancing, and she has indicated that Atlas Meridian will cooperate with the payoff and lien release process in the ordinary course.
Guarantors. The obligations of the Borrower under the Existing Credit Agreement are guaranteed by Holdings (Granite Peak NIH Holdings, LLC) and each existing direct and indirect domestic subsidiary of Nexford that was in existence at the time of the Original Credit Agreement's execution. In addition, several subsidiaries have been added as Guarantors via joinder agreements executed in connection with subsequent acquisitions completed by Nexford between 2021 and 2024. The full guarantor group is discussed in greater detail in Section IX below.
Lenders. The lending group under the Existing Credit Agreement consists of a syndicate of institutional lenders. At inception, Atlas Meridian Bank, N.A. served as sole lead arranger and sole bookrunner for the syndication of the facilities. As is typical of broadly syndicated loan transactions, the composition of the lending group may have changed over time through secondary market assignments. The identity of the current holders of the term loan and revolving commitments is not material to the proposed transaction, as the existing facilities will be repaid in full at closing.
B. Facilities
The Existing Credit Agreement provides for two credit facilities: a first lien term loan and a revolving credit facility, each as described below.
First Lien Term Loan. The first lien term loan was originally incurred in an aggregate principal amount of $875,000,000. Based on our current understanding, the full original principal amount of $875,000,000 remains outstanding as of the date of this memorandum. We note that the Existing Credit Agreement provides for scheduled amortization of 1.00% per annum of the original principal amount, payable in equal quarterly installments. Over the approximately five-and-a-half-year period since closing (June 2019 through February 2025), aggregate scheduled amortization payments would total approximately $48,125,000 in the absence of any voluntary prepayments. However, the current payoff estimate provided informally by Nexford management reflects an outstanding principal balance of $875,000,000, which suggests either that (i) minimal or no amortization payments have in fact been applied to reduce the principal balance, (ii) the amortization schedule was modified or deferred in connection with the First Amendment or a subsequent amendment, or (iii) additional borrowings were made under an incremental facility to restore the outstanding balance. I have flagged this discrepancy and will confirm the actual outstanding principal balance and amortization payment history with Priya Mehta, VP, Treasury & Corporate Finance at Nexford, as an open item. For purposes of this memorandum, I have used the $875,000,000 figure as the assumed outstanding principal amount.
The first lien term loan bears interest at a rate per annum equal to Term SOFR (as converted from LIBOR pursuant to the Second Amendment, discussed below) plus an applicable margin. The applicable margin is discussed in further detail in Section III.B. The stated maturity date of the first lien term loan is June 2026, reflecting a seven-year term from the June 14, 2019 original closing date.
Revolving Credit Facility. The Existing Credit Agreement also provides for a revolving credit facility with total commitments of $190,000,000. As of the date of this memorandum, the revolving credit facility is fully undrawn, with $0 in outstanding revolving loans. The revolving credit facility bears interest on drawn amounts at a rate per annum equal to Term SOFR plus an applicable margin, and an annual commitment fee is payable on the undrawn and uncancelled revolving commitments. The revolving credit facility includes customary sublimits for letters of credit and swingline loans; the specific sublimit amounts are to be confirmed from the schedules to the Existing Credit Agreement.
The original maturity date of the revolving credit facility was June 2024 (reflecting a five-year term from the June 14, 2019 original closing date). As discussed in Section III.C below, the Third Amendment extended the maturity date of the revolving credit facility to June 2025. As a result, the revolving credit facility, though currently undrawn, remains in effect and available for borrowings through its extended maturity date.
C. Governing Law
The Existing Credit Agreement, including all amendments thereto, is governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of law principles (other than Section 5-1401 and Section 5-1402 of the New York General Obligations Law). Venue for disputes is in the federal and state courts located in the Borough of Manhattan, City of New York. This is consistent with the governing law provisions of the proposed new credit agreement.
D. Estimated Payoff Amount
Based on our preliminary analysis and information provided by Nexford management, the estimated payoff amount as of the anticipated closing date of March 28, 2025 is as follows:
The revolving credit facility has $0 in outstanding borrowings, and the revolving commitments will be terminated in their entirety at closing. Any accrued but unpaid commitment fees on the revolving facility will be included in the final payoff amount.
A formal payoff letter will need to be obtained from Atlas Meridian Bank, N.A. (Sandra Vickers) prior to closing. Calderwood & Harkness will review and confirm all amounts set forth in the payoff letter, including any breakage costs associated with the SOFR interest period timing, administrative agent fees, and any other amounts due and payable under the Existing Credit Agreement. The payoff letter will also need to include wire instructions for the delivery of the payoff amount and a confirmation that, upon receipt thereof, all obligations under the Existing Credit Agreement will be deemed satisfied in full and all liens and security interests will be released. The target date for requesting the payoff letter is March 20, 2025, as discussed in the open items section of this memorandum.
III. Summary of the Four Amendments
A. First Amendment — March 20, 2020
The First Amendment was executed on March 20, 2020, approximately nine months after the original closing of the Existing Credit Agreement. The timing of this amendment — in the initial weeks of the COVID-19 pandemic and associated economic disruptions — strongly suggests that it was negotiated in response to the uncertainty in the industrial manufacturing sector during that period.
Based on this context and consistent with market practice for amendments executed during the early pandemic period, the First Amendment is expected to include one or more of the following modifications: (i) temporary modifications to the financial covenant testing levels under the Existing Credit Agreement, including potential covenant holidays for one or more quarterly testing periods; (ii) adjustments to the definition of "Consolidated EBITDA" or "Adjusted EBITDA" to permit add-backs for non-recurring costs directly attributable to the COVID-19 pandemic, including facility shut-down costs, supply chain disruption costs, workforce-related expenses, and similar items; and (iii) potential modifications to the restricted payment baskets or tightening of certain negative covenant baskets during any relief period. The specific terms of the First Amendment are to be confirmed upon detailed review of the fully executed amendment text, which I have requested from Nexford's in-house counsel, David Engstrom.
Relevance to the Proposed Transaction. The First Amendment is relevant primarily to the extent that any temporary covenant relief provisions remain in effect or have residual implications. Given that the First Amendment was executed nearly five years ago, it is expected that any temporary modifications or holiday periods have long since expired. However, we should confirm that (i) all temporary provisions have expired by their own terms, (ii) no ongoing modifications to the EBITDA definition remain in effect that would affect covenant compliance calculations, and (iii) no conditions or requirements imposed as part of the First Amendment relief (such as enhanced reporting obligations or tighter basket limitations) remain in effect and unsatisfied. Any lingering temporary provisions should be identified and addressed in the context of the closing deliverables for the proposed transaction.
B. Second Amendment — November 8, 2021
The Second Amendment was executed on November 8, 2021, and was a significant, multi-faceted amendment to the Existing Credit Agreement. The Second Amendment was executed simultaneously with, and in connection with, two related transactions: (i) the issuance by Nexford of $250,000,000 in aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Senior Unsecured Notes") under an Indenture with Pinnacle Trust Company, a New York trust company, as trustee (the "Indenture"); and (ii) a dividend recapitalization in which approximately $275,000,000 was distributed to Granite Peak NIH Holdings, LLC and its equity holders.
The Second Amendment effected the following key changes to the Existing Credit Agreement:
LIBOR-to-SOFR Transition. The Second Amendment replaced the London Interbank Offered Rate ("LIBOR") as the benchmark interest rate under the Existing Credit Agreement with the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York ("Term SOFR"). In connection with this transition, the Second Amendment incorporated customary credit spread adjustments to account for the structural difference between LIBOR and SOFR. Specifically, the credit spread adjustments were set at 10 basis points for one-month SOFR interest periods and 15 basis points for three-month SOFR interest periods. The applicable margin over the adjusted SOFR benchmark was maintained at the levels set forth in the Original Credit Agreement (to be confirmed). The LIBOR-to-SOFR transition provisions of the Second Amendment are consistent with the Alternative Reference Rates Committee ("ARRC") recommended fallback language and market conventions for the 2021 transition period.
Permitted Indebtedness. The Second Amendment added a new carve-out to the negative covenant on indebtedness (Section [●] of the Existing Credit Agreement) to permit the incurrence by Nexford of the $250,000,000 Senior Unsecured Notes. This carve-out was drafted as a specific exception for unsecured notes in an aggregate principal amount not to exceed $250,000,000, subject to the condition that such notes bear no scheduled amortization prior to their final maturity date and that their final maturity date be no earlier than 91 days after the maturity date of the first lien term loan.
Restricted Payments. The Second Amendment expanded the restricted payment capacity under the Existing Credit Agreement to permit the $275,000,000 dividend distribution to Holdings. This expansion may have taken the form of (i) an increase to the builder basket or general basket, (ii) a reduction in the pro forma leverage threshold required for the ratio-based restricted payment exception, or (iii) a specific one-time carve-out permitting the 2021 dividend. The precise mechanism is to be confirmed upon review of the amendment text, though based on the size of the distribution relative to the original facility size, it is likely that the ratio-based exception was relied upon, potentially supplemented by the builder basket.
Intercreditor Provisions. The Second Amendment added provisions to the Existing Credit Agreement expressly authorizing the Administrative Agent to enter into intercreditor arrangements with the trustee under the Senior Unsecured Notes Indenture. These provisions are important because they establish the contractual framework under which Atlas Meridian, as Collateral Agent, was authorized to agree to the relative priority and lien subordination terms governing the relationship between the first lien credit facility and the unsecured notes.
Relevance to the Proposed Transaction. The Second Amendment is relevant to the proposed transaction in several respects. First, it confirms that the existing facilities already operate on a Term SOFR benchmark, which simplifies the transition to the new credit agreement (which will also be SOFR-based). Second, the intercreditor authorization provisions in the Second Amendment provide useful precedent for the new First Lien/Unsecured Intercreditor Agreement that will be entered into at closing of the New Term Loan B among Crescent Harbor Bank, N.A. (as new first lien Collateral Agent), Pinnacle Trust Company (as unsecured notes trustee), and Nexford. Third, the restricted payment analysis under the Second Amendment informs our understanding of the available basket capacity and the structural precedent for the proposed $335,000,000 dividend, as discussed in Section VI below.
C. Third Amendment — April 15, 2023
The Third Amendment was executed on April 15, 2023 and primarily addressed the maturity of the revolving credit facility.
The key change effected by the Third Amendment was the extension of the maturity date of the $190,000,000 revolving credit facility from its original maturity date of June 2024 to an extended maturity date of June 2025. This extension was likely negotiated in order to maintain revolving credit availability for Nexford's working capital and general corporate purposes through a date closer to (but still prior to) the maturity of the first lien term loan in June 2026.
The Third Amendment may also have included adjustments to the financial covenant testing levels or incremental facility capacity under the Existing Credit Agreement. The specific terms of any such additional modifications are to be confirmed upon detailed review of the amendment text.
Relevance to the Proposed Transaction. The revolving credit facility, as extended by the Third Amendment, matures in June 2025. As no new revolving credit facility is being established in connection with the proposed New Term Loan B transaction, the existing revolving credit facility will simply be terminated at closing upon the full repayment of all obligations under the Existing Credit Agreement. All revolving commitments will be permanently reduced to zero, and the revolving facility will cease to exist. If Nexford determines that it requires revolving credit capacity following the closing of the proposed transaction, such capacity would need to be established pursuant to the incremental facility provisions of the new credit agreement being negotiated with Crescent Harbor Bank, N.A. We should discuss with Nexford management whether the absence of a revolving facility post-closing presents any operational concerns, and if so, whether an incremental revolving facility should be contemplated in the new credit agreement's incremental provisions.
D. Fourth Amendment — September 12, 2024
The Fourth Amendment was executed on September 12, 2024, approximately six months prior to the anticipated closing date of the proposed refinancing transaction.
The key change effected by the Fourth Amendment was the waiver of any prepayment premium, make-whole amount, or call protection that would otherwise be applicable to the voluntary prepayment, repayment, or refinancing of the existing $875,000,000 first lien term loan under the Existing Credit Agreement. The Original Credit Agreement (or a prior amendment) may have included soft call protection — typically in the form of a 1.00% premium on prepayments made within the first one to two years following closing — and/or a make-whole or yield maintenance provision. While any original soft call premium would likely have expired by its own terms prior to September 2024 (given the June 2019 original closing date), it is possible that a separate repricing protection or similar provision remained in effect. In any event, the Fourth Amendment was drafted to provide a comprehensive waiver of any and all premiums, make-whole amounts, or call protection provisions, ensuring a clean refinancing at par.
The timing of the Fourth Amendment — executed several months in advance of the proposed refinancing — strongly suggests that it was negotiated in anticipation of the proposed transaction, and may have been a condition to Crescent Harbor Bank's willingness to proceed with arranging the New Term Loan B.
Relevance to the Proposed Transaction. The Fourth Amendment is critically important to the proposed transaction. It confirms that the existing first lien term loan can be repaid at par (i.e., at 100% of the outstanding principal amount) plus accrued and unpaid interest at closing, without the payment of any prepayment premium, make-whole, yield maintenance, or similar amount. The estimated payoff amount of $879,375,000 reflects principal of $875,000,000 plus accrued interest of approximately $4,375,000, with no premium component. The availability of a par prepayment significantly reduces the total cost of the refinancing and was a key assumption in the financial modeling for the proposed transaction.
IV. Prepayment Provisions
A. Voluntary Prepayment
The Existing Credit Agreement contains customary provisions permitting the Borrower to voluntarily prepay outstanding term loans and revolving borrowings, subject to the following conditions and limitations:
(i) Minimum Prepayment Amounts and Notice Periods. Voluntary prepayments of term loans and revolving loans are subject to customary minimum prepayment amounts (typically $1,000,000 or $5,000,000, in integral multiples of $500,000 or $1,000,000) and advance notice requirements (typically one to three business days for SOFR-based borrowings and same-day or one business day for base rate borrowings). The specific minimum amounts and notice periods are to be confirmed from the Existing Credit Agreement text. For purposes of the proposed transaction, which involves a full prepayment of all outstanding obligations, the minimum prepayment amount requirement will be satisfied by the aggregate payoff amount.
(ii) SOFR Breakage Indemnification. The Borrower is required to indemnify the lenders for any breakage costs, losses, or expenses incurred as a result of a prepayment of SOFR-based borrowings on a date other than the last day of the applicable SOFR interest period. If the closing date of the proposed transaction does not coincide with the end of the current SOFR interest period, breakage costs may be payable. These costs are typically modest in relation to the overall transaction size, but they should be quantified and included in the payoff amount. We will confirm the current SOFR interest period end dates with Priya Mehta and Atlas Meridian.
(iii) Prepayment Premium. As discussed in Section III.D above, the Fourth Amendment waived any prepayment premium, make-whole amount, or call protection applicable to the prepayment or refinancing of the existing first lien term loan. Accordingly, no prepayment premium or make-whole is payable upon the full prepayment of the term loan at closing.
Confirmation. Pursuant to the Fourth Amendment, no prepayment premium or make-whole is payable upon the refinancing. The Borrower's obligation is limited to payment of the outstanding principal amount, accrued and unpaid interest, any accrued fees, and any SOFR breakage costs.
B. Mandatory Prepayment
The Existing Credit Agreement contains standard mandatory prepayment provisions that require the Borrower to apply certain net cash proceeds and excess cash flow amounts to the prepayment of the outstanding term loans. The mandatory prepayment triggers include:
(i) Excess Cash Flow Sweep. The Borrower is required to prepay the outstanding term loans annually with a specified percentage of Excess Cash Flow (as defined in the Existing Credit Agreement) for each fiscal year, subject to leverage-based step-downs. The applicable Excess Cash Flow sweep percentage and the leverage thresholds at which step-downs occur are to be confirmed from the Original Credit Agreement. In a typical sponsor-backed term loan B structure of this vintage, the initial sweep percentage would be 50% of Excess Cash Flow, stepping down to 25% and then to 0% as the Borrower's leverage ratio decreases.
(ii) Asset Sale Proceeds. The Borrower is required to prepay the outstanding term loans with 100% of the Net Cash Proceeds (as defined) from asset sales or other dispositions of property, subject to customary reinvestment rights (typically 12 to 18 months, with a possible 6-month extension).
(iii) Debt Issuance Proceeds. The Borrower is required to prepay the outstanding term loans with 100% of the Net Cash Proceeds from the issuance of indebtedness not otherwise permitted under the Existing Credit Agreement.
(iv) Insurance and Condemnation Proceeds. The Borrower is required to prepay the outstanding term loans with 100% of the Net Cash Proceeds from insurance recoveries or condemnation awards in respect of property, subject to customary reinvestment rights.
Observation. The proposed full repayment of the existing facilities at closing will satisfy and extinguish all mandatory prepayment obligations under the Existing Credit Agreement. Because the term loan is being repaid in full, no partial prepayment calculations, Excess Cash Flow sweep computations, or reinvestment period analyses are required. The complete payoff at closing moots all mandatory prepayment provisions.
C. Prepayment Mechanics
The closing mechanics for the repayment of the existing facilities will require the following steps:
A formal payoff letter must be obtained from Atlas Meridian Bank, N.A. (Sandra Vickers, Managing Director, Portfolio Management) in advance of the closing date. The payoff letter should specify, at a minimum:
(a) the aggregate principal amount of the term loan outstanding as of the payoff date;
(b) the aggregate amount of accrued and unpaid interest on the term loan through the payoff date (with per diem interest to account for any variance in the actual closing date);
(c) any unpaid fees, including administrative agent fees, commitment fees on the revolving facility, and any other amounts due under the Existing Credit Agreement or the related fee letters;
(d) any breakage costs payable in connection with the prepayment of SOFR-based borrowings prior to the end of the applicable interest period;
(e) wire instructions for the delivery of the payoff amount to Atlas Meridian for the account of the lenders and agents under the Existing Credit Agreement;
(f) a confirmation that, upon receipt of the full payoff amount in immediately available funds, all obligations of the Borrower and the Guarantors under the Existing Credit Agreement will be deemed satisfied, paid, and discharged in full; and
(g) a confirmation that, upon such satisfaction and discharge, all liens and security interests granted pursuant to the Existing Credit Agreement and the related collateral documents will be automatically released and terminated, and the Administrative Agent and Collateral Agent will execute and deliver any documents reasonably requested to evidence such release and termination.
Calderwood & Harkness will review the payoff letter upon receipt to confirm that all amounts are correctly stated and consistent with our independent calculations, that the lien release language is sufficient, and that the payoff letter does not contain any conditions or reservations that could impair the clean termination of the existing facilities. We will coordinate with Whitfield & Gage LLP (Margaret Ashby, Jonathan Ferris), counsel to Atlas Meridian, on the sequence of payoff, lien release, and new lien perfection to ensure that there is no gap in the collateral position and that the transition from the existing first lien security interest to the new first lien security interest in favor of Crescent Harbor Bank is effected seamlessly.
V. Change of Control Provisions
A. Existing Change of Control Trigger
The Existing Credit Agreement contains a change of control provision that, upon the occurrence of a "Change of Control" (as defined), grants the Administrative Agent, at the direction of the Required Lenders, the right to declare all outstanding obligations under the Existing Credit Agreement immediately due and payable and to terminate the revolving commitments.
Based on standard documentation conventions for sponsor-backed leveraged buyout credit facilities of this vintage, the "Change of Control" definition in the Existing Credit Agreement likely includes the following triggering events:
(a) Acquisition of Voting Equity in Holdings. The acquisition by any "person" or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), other than Granite Peak Capital Partners, LP and its controlled affiliates (the "Permitted Holders"), of direct or indirect beneficial ownership of more than 35% of the outstanding voting equity interests of Holdings (Granite Peak NIH Holdings, LLC).
(b) Nexford Ceasing to Be a Wholly-Owned Subsidiary. Nexford ceasing to be a direct, wholly-owned subsidiary of Holdings, or Holdings ceasing to own, directly, 100% of the outstanding equity interests of Nexford.
(c) Cross-Trigger to Material Indebtedness. The occurrence of a "change of control," "fundamental change," or similar event under any agreement governing Material Indebtedness of the Borrower or any Guarantor, which would include the Senior Unsecured Notes Indenture. The Indenture is expected to contain its own change of control put provision requiring Nexford to offer to repurchase the Senior Unsecured Notes at 101% of par upon a "Change of Control Triggering Event" (as defined in the Indenture).
The specific numerical thresholds, the precise definition of "Permitted Holders," and the scope of any exceptions or carve-outs to the change of control definition are to be confirmed upon detailed review of the Existing Credit Agreement text. However, the general framework described above is consistent with standard market practice for facilities of this type and vintage.
B. Relevance to Proposed Transaction
The proposed refinancing and dividend recapitalization do not constitute a "Change of Control" under the Existing Credit Agreement. The ownership structure of Nexford and Holdings is not being altered in connection with the proposed transaction. Specifically:
•  Granite Peak Capital Fund IV, LP continues to hold approximately 92% of the equity interests in Holdings.
•  GP Fund IV Co-Invest, LP continues to hold approximately 8% of the equity interests in Holdings.
•  Holdings continues to own, directly, 100% of the outstanding equity interests in Nexford.
•  No third party is acquiring any equity interest in Holdings or Nexford.
•  No "person" or "group" (other than the Permitted Holders) is acquiring beneficial ownership of any voting equity interests in Holdings.
Accordingly, none of the change of control triggers described above are implicated by the proposed transaction. The refinancing involves a change in the identity of the lender group and the administrative agent (from Atlas Meridian to Crescent Harbor Bank), but the replacement of the lender group through a refinancing does not constitute a change of control event.
The new credit agreement being negotiated with Crescent Harbor Bank will contain its own change of control provision with substantively similar triggers, including (i) a 35% voting equity threshold excluding Granite Peak Capital Partners, LP and its controlled affiliates as Permitted Holders, (ii) a requirement that Nexford remain a direct wholly-owned subsidiary of Holdings, and (iii) a cross-trigger to the Senior Unsecured Notes Indenture and any other agreements governing Material Indebtedness.
As a precautionary matter, we should confirm that the Existing Credit Agreement does not contain any change of control-adjacent provisions — such as assignment restrictions, key person requirements, or consent rights — that could be triggered by the refinancing itself (i.e., by the replacement of the administrative agent and lender group with a new administrative agent and lender group under a separate credit agreement). We do not anticipate that such provisions exist, as the refinancing involves a full repayment and termination rather than an assignment of the existing loans, but confirmation is warranted.
VI. Restricted Payment Provisions
A. General Framework
The Existing Credit Agreement contains a negative covenant restricting the ability of the Borrower and the Guarantors to make "Restricted Payments," which is defined to include, among other things: (i) dividends and other distributions on equity interests; (ii) redemptions, repurchases, retirements, or other acquisitions of equity interests; (iii) payments of principal, interest, or other amounts on, or purchases, redemptions, or defeasance of, junior indebtedness (including subordinated indebtedness); and (iv) certain other similar payments and transfers. This covenant is standard for sponsor-backed leveraged credit facilities and serves to protect the lenders by limiting the ability of the credit group to distribute value to equity holders in a manner that could impair the credit group's ability to service its debt obligations.
Restricted payments are generally prohibited unless they fall within one of the specified exceptions or baskets set forth in the covenant. The Existing Credit Agreement, as amended, contains several such exceptions, which are summarized below.
B. Key Restricted Payment Baskets and Exceptions (as Amended)
Based on our review of the Existing Credit Agreement and the amendments, the following restricted payment baskets and exceptions are expected to be available:
General Annual Basket. The Existing Credit Agreement permits restricted payments in an aggregate amount not exceeding a specified annual dollar amount, without regard to leverage or other financial condition tests. Based on the original facility size and market practice at the time of the Original Credit Agreement's execution, this general annual basket is likely in the range of $15,000,000 to $25,000,000 per fiscal year. This basket would be available for routine tax distributions, management fee payments, and similar recurring restricted payments of relatively modest size. The specific annual dollar amount is to be confirmed from the agreement text.
Builder Basket. The Existing Credit Agreement provides a cumulative restricted payment capacity (the "builder basket") that grows over time based on a percentage (typically 50%) of Consolidated Net Income (or a similar measure) of the Borrower and its restricted subsidiaries for each fiscal quarter, commencing from a specified start date (typically the first fiscal quarter ending after the closing date of the Original Credit Agreement). The builder basket typically also includes a starter amount (which may have been in the range of $25,000,000 to $50,000,000) and may be increased by certain equity issuance proceeds and decreased by prior utilization. This basket was likely a significant source of capacity for the $275,000,000 dividend recapitalization effected in November 2021 in connection with the Second Amendment, potentially supplemented by the ratio-based exception described below.
Ratio-Based Exception. The Existing Credit Agreement permits unlimited restricted payments (i.e., with no fixed dollar cap) subject to the Borrower's pro forma compliance with a specified Total Net Leverage Ratio (or, in some formulations, a Total Secured Net Leverage Ratio) after giving effect to the restricted payment. Based on market practice for facilities of this vintage and size, the applicable leverage threshold is likely in the range of 3.50x to 4.00x Total Net Leverage. This exception would have been relevant to the 2021 dividend and is particularly relevant to the proposed approximately $335,000,000 dividend, as discussed in Section VI.C below.
Equity Proceeds Basket. The Existing Credit Agreement permits restricted payments funded by the net cash proceeds of new equity contributions or equity issuances by the Borrower or Holdings. This basket is not applicable to the proposed transaction, as the dividend is being funded from debt proceeds rather than equity proceeds.
Tax Distribution Basket. Customary for sponsor-owned entities, the Existing Credit Agreement permits restricted payments constituting tax distributions to Holdings and its equity holders, in amounts necessary to enable Holdings and its equity holders to satisfy their respective income tax liabilities attributable to the income of the Borrower and its subsidiaries. This basket is a mechanical, recurring exception and is not relevant to the proposed dividend recapitalization.
C. Analysis for the Proposed Dividend Recapitalization
The proposed approximately $335,000,000 dividend to Granite Peak NIH Holdings, LLC will be funded from the net proceeds of the New Term Loan B. The critical question is whether this dividend must be permitted under the restricted payment covenant of the Existing Credit Agreement, or whether the sequencing of the closing mechanics can be structured so that the Existing Credit Agreement is no longer in effect at the time the dividend is paid.
Preferred Sequencing — Repayment and Termination Before Dividend. If the funds flow is structured so that (i) the New Term Loan B is funded, (ii) the existing facilities under the Existing Credit Agreement are repaid in full from the proceeds of the New Term Loan B, (iii) the Existing Credit Agreement is terminated, and (iv) the dividend is then paid to Holdings — all as part of a single integrated closing — then the dividend would be paid at a time when the Existing Credit Agreement's restricted payment covenants are no longer in effect. Under this sequencing, the permissibility of the dividend would be governed solely by the restricted payment provisions of the new credit agreement being entered into with Crescent Harbor Bank, which will expressly permit the closing date dividend as a specified use of proceeds.
This is the preferred approach, as it eliminates any risk that the dividend could be challenged as a violation of the Existing Credit Agreement's restricted payment covenant. The closing mechanics should be structured with appropriate simultaneous or near-simultaneous funding, repayment, termination, and dividend payment steps, documented through a detailed funds flow memorandum to be agreed among the parties.
Alternative Sequencing — Simultaneous Dividend and Repayment. If for practical or logistical reasons the funds flow is structured such that the dividend is paid concurrently with (rather than after) the repayment and termination of the Existing Credit Agreement, then the dividend must be permitted under the Existing Credit Agreement's restricted payment covenant at the time of payment. In this scenario, we would need to confirm that adequate basket capacity exists.
Based on the preliminary pro forma financial metrics provided by Nexford management — specifically, LTM Adjusted EBITDA of approximately $385,000,000 and pro forma Total Net Debt of approximately $1,550,000,000 (comprising $1,400,000,000 of the New Term Loan B and $250,000,000 of Senior Unsecured Notes, net of estimated cash on hand of approximately $100,000,000) — the pro forma Total Net Leverage Ratio would be approximately 4.03x. The ratio-based restricted payment exception may therefore be available if the applicable leverage threshold in the Existing Credit Agreement is at or above 4.03x. If the threshold is set at 4.00x (which is within the expected range), the dividend would not satisfy the ratio test on a pro forma basis. If the threshold is set at 4.25x or higher, the ratio-based exception would not be available.
We need to confirm the exact leverage threshold for the ratio-based exception. If the ratio-based exception is not available under the simultaneous sequencing, we would need to assess whether the builder basket (alone or in combination with other baskets) provides sufficient cumulative capacity for a $335,000,000 distribution, which would require detailed historical calculations.
Recommendation. We strongly recommend structuring the funds flow so that the repayment of the existing facilities and the termination of the Existing Credit Agreement occur prior to or simultaneously with the payment of the dividend, with appropriate closing mechanics to ensure that the Existing Credit Agreement's restricted payment covenants are not implicated. This approach eliminates the need for any basket or ratio analysis under the Existing Credit Agreement and avoids any potential dispute with Atlas Meridian or the existing lenders. We should coordinate with Whitfield & Gage LLP (Margaret Ashby, counsel to Atlas Meridian) and Kellner Brandt & Associates (Patricia Voss, counsel to the Granite Peak sponsors) on the preferred sequencing and the drafting of the funds flow memorandum.
VII. Financial Covenants
A. Existing Financial Covenants
The Existing Credit Agreement is expected to contain one or more maintenance financial covenants that are tested on a quarterly basis. Based on the facility vintage (June 2019), the facility structure (first lien term loan plus revolving credit facility), and the sponsor-backed leveraged buyout context, the Original Credit Agreement likely included the following financial covenants:
(a) Maximum First Lien Net Leverage Ratio. A maintenance covenant requiring the Borrower to maintain a First Lien Net Leverage Ratio (defined as the ratio of Consolidated First Lien Net Debt to Consolidated EBITDA) not exceeding a specified maximum level, tested as of the last day of each fiscal quarter. The maximum level would be expected to decline over the term of the facility through step-downs at specified intervals (e.g., from an initial level of 5.50x or 6.00x stepping down to 5.00x or 5.25x by the final years of the facility term). The specific covenant levels and step-down schedule are to be confirmed.
(b) Maximum Total Net Leverage Ratio. Potentially, a maintenance covenant requiring the Borrower to maintain a Total Net Leverage Ratio (defined as the ratio of Consolidated Total Net Debt to Consolidated EBITDA) not exceeding a specified maximum level, tested quarterly. This covenant, if present, would have been set at a level above the First Lien Net Leverage Ratio covenant, reflecting the additional unsecured or subordinated debt in the capital structure.
(c) Minimum Interest Coverage Ratio or Fixed Charge Coverage Ratio. Potentially, a maintenance covenant requiring the Borrower to maintain a minimum Interest Coverage Ratio (defined as the ratio of Consolidated EBITDA to Consolidated Interest Expense) or Fixed Charge Coverage Ratio (defined as the ratio of Consolidated EBITDA to Consolidated Fixed Charges, including debt service, capital expenditures, and certain other fixed charges) of not less than a specified minimum level, tested quarterly.
It is possible that the Existing Credit Agreement contains only the First Lien Net Leverage Ratio covenant as a maintenance covenant, with the other ratios tested only as incurrence-based conditions to specified transactions (e.g., restricted payments, investments, and incremental borrowings). The precise scope of the maintenance covenants is to be confirmed.
As noted in Section III.A above, the First Amendment (March 2020) may have provided temporary relief from or modifications to these financial covenants in response to the COVID-19 pandemic. Any such relief provisions should have expired by their own terms well before the date of this memorandum. We should confirm current testing levels, verify that Nexford is in compliance with all financial covenants as of the most recent testing date, and confirm that no waivers or amendments are currently in effect.
B. Relevance to Proposed Transaction
The financial covenants under the Existing Credit Agreement will cease to apply upon the full repayment and termination of the Existing Credit Agreement at closing of the proposed transaction. No ongoing compliance with the existing financial covenants is required after closing.
However, the closing of the proposed transaction is conditioned upon the absence of any Default or Event of Default under the Existing Credit Agreement at the time of closing. The closing certificate to be delivered by Nexford at closing of the New Term Loan B will certify, among other things, that no Default or Event of Default exists under the Existing Credit Agreement immediately prior to, and giving effect to, the repayment thereof. A breach of a financial covenant under the Existing Credit Agreement that remained uncured at the time of closing would constitute an Event of Default and could prevent the closing from occurring. Accordingly, we must confirm that all financial covenants are currently being satisfied and will continue to be satisfied through the anticipated closing date of March 28, 2025.
By contrast, the new credit agreement being negotiated with Crescent Harbor Bank will contain only a single springing financial covenant: a maximum First Lien Net Leverage Ratio of 5.00x, tested quarterly only when the aggregate outstanding revolving loans exceed 40% of the total revolving commitments. Because no revolving facility is being established in connection with the proposed transaction, this springing financial covenant will not be testable at closing or at any time thereafter, unless a revolving facility is subsequently added via the incremental facility provisions under the new credit agreement. This structure provides Nexford with significantly greater financial covenant flexibility than the existing maintenance covenant regime.
VIII. Negative Covenants — Limitations on Indebtedness
A. Permitted Indebtedness Under the Existing Credit Agreement
The Existing Credit Agreement contains a customary negative covenant restricting the ability of the Borrower and the Guarantors to incur, create, assume, or permit to exist any indebtedness, except for specified categories of permitted indebtedness. The permitted indebtedness exceptions are expected to include, among others, the following categories relevant to the transaction history and the proposed transaction:
(a) Indebtedness under the Existing Credit Agreement. The term loan and revolving borrowings under the Existing Credit Agreement itself are, by definition, permitted.
(b) Senior Unsecured Notes. The $250,000,000 Senior Unsecured Notes due 2028 are permitted pursuant to the specific carve-out added by the Second Amendment, as discussed in Section III.B above.
(c) Capital Lease Obligations and Purchase Money Indebtedness. Capital lease obligations and purchase money indebtedness incurred to finance the acquisition of property or equipment are permitted up to a specified aggregate threshold (to be confirmed; typically in the range of $25,000,000 to $50,000,000).
(d) General Basket Indebtedness. A general basket permitting the incurrence of indebtedness in an aggregate outstanding principal amount not exceeding a specified dollar cap (to be confirmed; typically in the range of $50,000,000 to $100,000,000 for facilities of this size).
(e) Intercompany Indebtedness. Indebtedness among the Borrower and its subsidiaries (and among subsidiaries) is permitted, subject to customary subordination requirements for indebtedness owed by obligors to non-obligors.
(f) Incremental Facility Indebtedness. The Existing Credit Agreement may contain incremental facility provisions (commonly referred to as an "accordion" feature) permitting the Borrower to incur additional first lien term loans or increase the revolving commitments under the Existing Credit Agreement, subject to specified conditions (including, typically, a fixed dollar basket and/or an incurrence-based leverage test). The existence and terms of any incremental facility provisions are to be confirmed.
B. Relevance to Proposed Transaction
The incurrence of the New Term Loan B in an aggregate principal amount of $1,400,000,000 would not be permitted under the Existing Credit Agreement's indebtedness covenant. The New Term Loan B significantly exceeds any incremental basket or general basket that may be available under the Existing Credit Agreement, and it is not being incurred as an incremental facility under the existing documentation.
However, this is not a legal impediment to the proposed transaction. The New Term Loan B is being incurred under a new, separate credit agreement with Crescent Harbor Bank, N.A. as Administrative Agent and Collateral Agent and a new syndicate of lenders. The Existing Credit Agreement will be repaid in full and terminated at closing, simultaneously with the funding of the New Term Loan B. Because the Existing Credit Agreement will cease to exist upon repayment and termination, its indebtedness covenant will no longer restrict the Borrower's ability to incur indebtedness.
The funds flow and closing mechanics must be structured to ensure that (i) the New Term Loan B is funded, (ii) the proceeds are immediately applied to repay the existing facilities in full, and (iii) the Existing Credit Agreement is terminated — all as part of a single integrated closing. Under this structure, the Borrower's incurrence of the New Term Loan B and the simultaneous repayment of the existing facilities are treated as part of a single, indivisible transaction. No amendment to the Existing Credit Agreement is required to permit the proposed refinancing.
IX. Security and Guarantee Package Under the Existing Credit Agreement
A. Guarantors
As noted in Section II.A above, the obligations of the Borrower under the Existing Credit Agreement are guaranteed by Holdings and each direct and indirect domestic subsidiary of the Borrower. The current guarantor group consists of the following entities:
(a) Granite Peak NIH Holdings, LLC (Holdings);
(b) Nexford Precision Components, Inc. (original guarantor);
(c) Nexford Engineered Systems, LLC (original guarantor);
(d) Nexford Coatings & Surface Technologies, Inc. (original guarantor);
(e) Nexford Manufacturing Services, LLC (original guarantor);
(f) Nexford Properties, LLC (original guarantor);
(g) Nexford International Holdings, Inc. (original guarantor; CFC holdco for Nexford Canada Holdings ULC);
(h) Clearfield Tool & Die, Inc. (added via joinder in connection with acquisition completed in 2021);
(i) Summit Industrial Fabrication Co. (added via joinder in connection with acquisition completed in 2022);
(j) Ridgepoint Specialty Coatings, LLC (added via joinder in connection with acquisition completed in 2023); and
(k) Lakeshore Precision Engineering, Inc. (added via joinder in connection with acquisition completed in 2024).
The guarantor group under the Existing Credit Agreement should be substantially the same as (or a subset of) the proposed guarantor group under the new credit agreement. We should confirm that all eleven current Subsidiary Guarantors listed above are reflected in the existing guarantee documentation, including those that were added via joinder agreements in connection with the four acquisitions completed between 2021 and 2024. We should also confirm that no additional subsidiaries have been formed or acquired since the most recent joinder (Lakeshore, 2024) that should have been, but were not, joined as guarantors under the Existing Credit Agreement. Any discrepancy in the guarantor group could affect the representations and warranties to be made in the closing certificate and the new credit agreement.
B. Collateral
The obligations under the Existing Credit Agreement are secured by a first-priority security interest in substantially all assets of the Borrower and each Guarantor. The collateral package includes:
(a) Pledged Equity Interests. 100% of the equity interests in each direct domestic subsidiary of the Borrower and each Guarantor, and 65% of the voting equity interests (and 100% of the non-voting equity interests) in each first-tier controlled foreign corporation (or CFC holdco). Specifically, this includes a pledge of 65% of the equity interests in Nexford Canada Holdings ULC, held through the CFC holdco Nexford International Holdings, Inc.
(b) Accounts Receivable, Inventory, and Equipment. All accounts receivable, inventory, and equipment of the Borrower and each Guarantor.
(c) intellectual Property. All patents, trademarks, copyrights, trade secrets, and other intellectual property of the Borrower and each Guarantor, together with all licenses and agreements related thereto.
(d) Deposit Accounts and Securities Accounts. All deposit accounts and securities accounts maintained by the Borrower and each Guarantor, subject to control agreements in favor of the Collateral Agent.
(e) General Intangibles and Proceeds. All general intangibles, payment intangibles, instruments, chattel paper, documents, letter-of-credit rights, commercial tort claims (to the extent identified and pledged), and all proceeds of the foregoing.
(f) Owned Real Property. Mortgages on all owned real property of the Borrower and the Guarantors with a fair market value exceeding the threshold specified in the Existing Credit Agreement. Based on information provided by Nexford management, the following four properties are currently subject to mortgages in favor of Atlas Meridian:
•  Schaumburg, Illinois (corporate headquarters and manufacturing facility; Cook County);
•  Rockford, Illinois (manufacturing facility; Winnebago County);
•  Greenville, South Carolina (manufacturing facility; Greenville County); and
•  Houston, Texas (manufacturing and distribution facility; Harris County).
All existing liens in favor of Atlas Meridian Bank, N.A. as Collateral Agent must be fully released and terminated at closing of the proposed transaction, and new first-priority liens in favor of Crescent Harbor Bank, N.A. as new Collateral Agent must be granted and perfected simultaneously.
C. Lien Release and UCC Termination Requirements
Upon receipt of the full payoff amount in immediately available funds, Atlas Meridian Bank, N.A. must take the following actions to release and terminate all existing liens and security interests:
(a) Lien Release Authorization Letter. Execute and deliver a lien release authorization letter confirming the satisfaction of all obligations under the Existing Credit Agreement and authorizing the release and termination of all liens and security interests granted in connection therewith.
(b) UCC-3 Termination Statements. Authorize the filing of UCC-3 Termination Statements in all applicable filing jurisdictions to terminate the financing statements filed in connection with the Existing Credit Agreement. Based on the organizational jurisdictions and locations of the Borrower and Guarantors, UCC-3 Termination Statements will need to be filed in the following jurisdictions: Delaware (Borrower and several subsidiaries), Illinois (Borrower headquarters and Illinois subsidiaries), Pennsylvania (if Atlas Meridian filed in its own jurisdiction), South Carolina (Greenville operations), Texas (Houston operations), and Michigan (if any subsidiary is organized or located in Michigan). The full list of UCC filing jurisdictions is to be confirmed from the existing UCC search results.
(c) Mortgage Releases. Execute and deliver mortgage discharge or release documents for recording in the applicable county land records offices for each of the four mortgaged properties:
•  Cook County, Illinois (Schaumburg property);
•  Winnebago County, Illinois (Rockford property);
•  Greenville County, South Carolina (Greenville property); and
•  Harris County, Texas (Houston property).
(d) Return of Pledged Collateral. Release and return all pledged equity certificates, stock powers, promissory notes, and other physical collateral in the possession of Atlas Meridian as Collateral Agent.
(e) Termination of Control Agreements. Deliver termination notices or execute termination agreements with respect to all deposit account control agreements and securities account control agreements in favor of Atlas Meridian as Collateral Agent.
Calderwood & Harkness will prepare all UCC-3 Termination Statements and coordinate the filing thereof promptly following closing, with a target completion date of March 31, 2025. Mortgage release and discharge documents will be coordinated with local counsel in each applicable jurisdiction. The return of pledged equity certificates and other physical collateral will be coordinated with Atlas Meridian's collateral administration department. New control agreements in favor of Crescent Harbor Bank, N.A. as new Collateral Agent will need to be executed and delivered at or promptly following closing.
X. Anti-Assignment and Consent Provisions
The Existing Credit Agreement contains customary provisions governing the assignment and transfer of loans and commitments by the lenders. Under these provisions, lenders are generally permitted to assign their term loans and revolving commitments to other lenders, affiliates of lenders, and approved funds, without the consent of the Borrower. Assignments to non-lender/non-affiliate transferees typically require the consent of the Borrower and the Administrative Agent, subject to exceptions for assignments made during the continuance of an Event of Default (during which Borrower consent is not required).
The proposed transaction does not involve an assignment of the existing loans or commitments. Rather, the existing loans are being repaid in full in cash, and the existing commitments are being terminated. No assignment, transfer, or novation of the existing obligations is occurring. Accordingly, no Borrower consent to assignment is required, and the anti-assignment provisions of the Existing Credit Agreement are not implicated.
As a precautionary matter, we should confirm that no provision of the Existing Credit Agreement requires the consent of Atlas Meridian, the Administrative Agent, or the existing lenders to a refinancing of the existing facilities with a new lender group under a separate credit agreement. Standard credit agreement documentation does not impose such a requirement — the Borrower's right to make a voluntary prepayment in full and terminate the facilities is an absolute right, not subject to the consent of the lenders or the Administrative Agent. However, we should review the Existing Credit Agreement to confirm the absence of any unusual provisions that could be construed as a consent requirement.
XI. Conditions Precedent to Repayment / Termination
The Existing Credit Agreement should not impose substantive conditions on the Borrower's ability to make a voluntary prepayment in full and terminate the facilities. The conditions applicable to a voluntary prepayment are limited to procedural requirements, specifically:
(a) Delivery of Prepayment Notice. The Borrower must deliver a prepayment notice to the Administrative Agent a specified number of business days prior to the prepayment date. The notice period for SOFR-based borrowings is typically three business days, and the notice period for base rate borrowings is typically one business day. The prepayment notice should specify the aggregate amount of the prepayment, the date of the prepayment, and whether the prepayment is being applied to term loans, revolving loans, or both.
(b) Payment of Accrued Interest and Fees. The Borrower must pay all accrued and unpaid interest on the loans being prepaid through the prepayment date, together with any accrued and unpaid fees (including commitment