PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
ANNOTATED TERM SHEET
C&H COMMENTS ON CRESCENT HARBOR INITIAL TERM SHEET
Nexford Industrial Holdings Inc.
$1,400,000,000 Senior Secured Term Loan B
Calderwood & Harkness LLP Comments and Mark-ups
February 7, 2025
Matter No.: 1005-00001
Prepared by: Marcus Leung, Lead Associate, Banking & Finance
Reviewed by: Claudia Merritt, Responsible Partner, Banking & Finance
Reference Note: This annotated version reflects Calderwood & Harkness LLP's comments on the initial term sheet delivered by Crescent Harbor Bank, N.A. on February 5, 2025. Throughout this document, annotations appear in bracketed comments denoted by "[C&H Comment:]". All clean, unbracketed text represents the original Crescent Harbor language as set forth in the initial term sheet. This annotated term sheet should be read in conjunction with the separate Term Sheet Issues List and Negotiation Memorandum, which will be circulated under separate cover.
INTRODUCTORY NOTE / INSTRUCTIONS TO READER
This annotated term sheet has been prepared by Calderwood & Harkness LLP ("C&H") for the benefit of its client, Nexford Industrial Holdings Inc. (the "Borrower" or "Nexford"), in connection with the proposed $1,400,000,000 Senior Secured Term Loan B facility (the "Facility") to be arranged by Crescent Harbor Bank, N.A. ("Crescent Harbor"). The following guidelines are provided for the reader's reference in reviewing this document:
Annotation Format. All comments, proposed revisions, open questions, and negotiation points prepared by C&H are presented in boldface bracketed annotations marked "[C&H Comment:]" throughout the document. These annotations are clearly distinguished from the original Crescent Harbor term sheet language, which appears as clean, unmarked text. Where C&H proposes specific alternative language or deletion of existing language, such proposals are set forth within the bracketed annotations. In certain instances, annotations include cross-references to other sections of this term sheet or to external memoranda and analyses.
Borrower's Counsel Perspective. All comments contained herein are made from the perspective of borrower's counsel, on behalf of Nexford Industrial Holdings Inc. and its parent entity, Granite Peak NIH Holdings, LLC. The annotations reflect C&H's assessment of market-standard terms for sponsor-backed institutional Term Loan B facilities of this size and type, and are informed by recent precedent transactions in the industrial manufacturing sector.
Cross-Reference to Companion Documents. For a detailed analysis of strategic negotiation positions, prioritized discussion of key commercial and legal issues, and recommended approaches for the borrower side, the reader is directed to the separate Term Sheet Issues List and Negotiation Memorandum to be circulated on February 8, 2025. That memorandum supplements but does not replace the annotations contained in this document.
Delivery Instructions. This marked version of the term sheet is intended to serve as the basis for the revised term sheet to be delivered to Whitfield & Gage LLP (arranger's and agent's counsel) by no later than February 10, 2025. Prior to delivery, all annotations and bracketed comments will be converted to either (a) redlined changes to the term sheet language reflecting agreed C&H positions, or (b) written comments to accompany the revised term sheet in a separate cover letter. Internal C&H review and client approval of the final marked version must be completed before external distribution.
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SECTION 1: TRANSACTION OVERVIEW / SUMMARY
1.1 Transaction Description
Transaction: Senior secured Term Loan B facility for the refinancing of existing credit facilities and a dividend recapitalization.
Transaction Type: Refinancing and dividend recapitalization.
Total Facility Amount: $1,400,000,000 (One Billion Four Hundred Million Dollars).
The proceeds of the Facility will be used, together with cash on the balance sheet of the Borrower, to (i) refinance in full the Borrower's existing first lien term loan and revolving credit facility under the Existing Credit Agreement (as defined below), (ii) fund a dividend distribution to the Borrower's direct parent, Granite Peak NIH Holdings, LLC, (iii) pay transaction fees and expenses incurred in connection with the Facility, and (iv) provide cash to the Borrower's balance sheet for general corporate purposes and working capital needs.
[C&H Comment: Confirm that "refinancing" as used in this Transaction Description encompasses both the existing first lien term loan (approximately $875,000,000 principal outstanding) and the existing revolving credit facility ($190,000,000 in commitments, currently undrawn). The term sheet should include explicit reference to the termination of the revolving credit facility commitments as part of the transaction. While no amounts are currently drawn under the revolver, the revolving commitments must be terminated simultaneously with the payoff of the first lien term loan to ensure a clean refinancing and to satisfy any "payment in full" definition under the Existing Credit Agreement. We recommend that the Transaction Description be revised to separately enumerate each element of the refinancing to avoid ambiguity.]
1.2 Use of Proceeds
The following table summarizes the anticipated sources and uses of funds in connection with the Transaction:
Sources:
Uses:
[C&H Comment: Request that the term sheet explicitly state that amounts designated as "cash to balance sheet" ($147,000,000) are intended for general corporate purposes and working capital needs of the Borrower and its restricted subsidiaries. This clarification is important for purposes of the "use of proceeds" representation and warranty in the Credit Agreement and for ensuring compliance with applicable banking regulations and anti-money laundering requirements.]
[C&H Comment: Confirm that the payoff amount for the Atlas Meridian first lien term loan ($879,375,000) is an estimate based on the anticipated closing date of March 28, 2025, and that the actual payoff amount will be calculated as of the actual closing date and may vary depending on the timing of closing. Interest continues to accrue on the existing term loan at the rate set forth in the Existing Credit Agreement, and any variance in the closing date will affect the accrued interest component. The sources-and-uses table and the funds flow memorandum should accommodate this variability. To the extent the actual payoff amount is less than estimated, the difference should flow to "cash to balance sheet." To the extent the actual payoff amount exceeds the estimate, the difference should be funded from "cash to balance sheet" or other available funds.]
[C&H Comment: Confirm reconciliation of sources and uses: $879,375,000 (Atlas Meridian payoff) + $335,000,000 (dividend) + $38,625,000 (fees and expenses) + $147,000,000 (cash to balance sheet) = $1,400,000,000. Reconciliation confirmed.]
1.3 Anticipated Closing Date
Target Closing Date: March 28, 2025.
[C&H Comment: Note tight timeline from the date of this annotated term sheet (approximately 49 days to target closing). The conditions precedent section of the Credit Agreement must accommodate reasonable flexibility for post-closing deliverables, particularly with respect to (i) mortgages and mortgage recordings in Cook County (IL), Winnebago County (IL), Greenville County (SC), and Harris County (TX), (ii) title insurance policies and ALTA surveys, (iii) deposit account control agreements and securities account control agreements for newly identified accounts, and (iv) landlord waivers and estoppel certificates for leased properties. See Section 13 below for detailed requests regarding post-closing periods. Failure to obtain a meaningful post-closing period for these deliverables may jeopardize the ability to meet the March 28 closing date.]
SECTION 2: PARTIES
2.1 Borrower. Nexford Industrial Holdings Inc., a corporation organized and existing under the laws of the State of Delaware.
• Employer Identification Number (EIN): 36-4178552
• Delaware Secretary of State File Number: 5765432
• Principal Place of Business / Headquarters: 1400 Industrial Parkway, Schaumburg, Illinois 60173
The Borrower is the sole borrower under the Facility and the primary obligor with respect to all obligations arising under the Credit Agreement and the other Loan Documents.
[C&H Comment: Confirm that the Borrower is the sole entity incurring the loan obligations under the Facility. The current term sheet does not contemplate a co-borrower structure, and we understand that no co-borrower arrangement is intended. If any subsidiary of the Borrower is expected to have direct borrowing rights (e.g., for purposes of a future incremental revolving facility with sub-facilities for letters of credit or swingline loans), the term sheet should address that structure separately. For purposes of the current transaction, the sole-borrower structure is confirmed and acceptable.]
2.2 Holdings / Direct Parent Guarantor
Granite Peak NIH Holdings, LLC, a limited liability company organized and existing under the laws of the State of Delaware.
• Employer Identification Number (EIN): 85-3291047
• Delaware Secretary of State File Number: 7234891
• Registered Agent and Address: c/o Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801
Holdings is the direct parent entity of the Borrower and holds 100% of the issued and outstanding equity interests of the Borrower. Holdings will serve as a Holdings Guarantor under the Credit Agreement, providing a guarantee of the Borrower's obligations under the Facility.
[C&H Comment: Confirm that the Holdings guarantee is limited in scope to a guarantee of the Borrower's payment and performance obligations under the Loan Documents and does not include independent affirmative or negative covenants applicable to Holdings beyond what is customary for a holdings-level guarantor in sponsor-backed Term Loan B transactions. Specifically, the Holdings guarantee should be limited to the following covenants at the Holdings level: (i) preservation of existence, (ii) a restriction on Holdings incurring any indebtedness (other than the guarantee itself and customary permitted exceptions), (iii) a limitation on Holdings engaging in merger or consolidation transactions (other than permitted reorganizations), and (iv) a restriction on Holdings conducting business activities other than holding equity interests in the Borrower and activities incidental thereto. Holdings should not be subject to the full complement of affirmative and negative covenants applicable to the Borrower and its restricted subsidiaries. This is a standard market formulation for a holdings guarantor in a leveraged buyout structure, and any departure from this standard should be flagged for further negotiation.]
2.3 Guarantors (Subsidiary Guarantors)
Each existing and future direct and indirect domestic restricted subsidiary of the Borrower (other than Excluded Subsidiaries) will be required to guarantee all obligations of the Borrower under the Credit Agreement and the other Loan Documents (collectively with Holdings, the "Guarantors"; together with the Borrower, the "Loan Parties").
Current Subsidiary Guarantors (11 entities):
1. Nexford Precision Components, Inc. — Delaware corporation
2. Nexford Engineered Systems, LLC — Delaware limited liability company
3. Nexford Coatings & Surface Technologies, Inc. — Delaware corporation
4. Nexford Manufacturing Services, LLC — Illinois limited liability company
5. Nexford Properties, LLC — Delaware limited liability company
6. Nexford International Holdings, Inc. — Delaware corporation (CFC holding company)
7. Clearfield Tool & Die, Inc. — Pennsylvania corporation
8. Summit Industrial Fabrication Co. — South Carolina corporation
9. Ridgepoint Specialty Coatings, LLC — Texas limited liability company
10. Lakeshore Precision Engineering, Inc. — Michigan corporation
Note: The above list reflects the eleven (11) existing domestic subsidiaries of the Borrower as of the date of this term sheet. One entity in the list, Nexford International Holdings, Inc., is organized as a Delaware corporation but serves as the holding company for the Borrower's Canadian operations and is therefore treated as a controlled foreign corporation ("CFC") holding company for U.S. federal income tax purposes. As a CFC holding company, Nexford International Holdings, Inc. will be a Guarantor, but the pledge of its equity interests in Nexford Canada Holdings ULC will be limited as described in Section 6 (Collateral / Security Package).
Excluded Entities (Foreign Subsidiaries — Not Guarantors):
• Nexford Canada Holdings ULC — British Columbia unlimited liability company
• Nexford Canada Manufacturing, Inc. — Ontario corporation
Foreign subsidiaries are not required to guarantee the obligations under the Facility and are not Loan Parties.
[C&H Comment: Three items for discussion:
First, confirm that the Credit Agreement will include an immaterial subsidiaries exclusion threshold. We propose that any domestic restricted subsidiary with total assets of less than 5.0% of consolidated total assets of the Borrower and its restricted subsidiaries on an individual basis, and all such immaterial subsidiaries collectively representing less than 10.0% of consolidated total assets in the aggregate, be excluded from the guarantor and collateral requirements. This is a standard market formulation for TLB transactions and avoids the administrative burden and cost of obtaining guarantees, security interests, and related deliverables from de minimis entities.
Second, we propose a carve-out from the guarantor joinder requirement for non-wholly-owned joint venture subsidiaries that may be acquired or formed in the future. To the extent the Borrower enters into a joint venture arrangement in which a third party holds a meaningful equity interest, requiring that joint venture entity to become a Guarantor may be impracticable due to governance requirements, consent obligations, or contractual restrictions in the joint venture agreement. We propose that subsidiaries in which the Borrower or any Loan Party holds less than 80% of the equity interests (or less than 80% of the voting power) be excluded from the definition of "Guarantor" and not required to join as a Loan Party.
Third, confirm the treatment of Nexford International Holdings, Inc. as a CFC holding company. As noted above, this entity is a Guarantor but the pledge of its equity interests in Nexford Canada Holdings ULC is limited to 65% of voting equity and 100% of non-voting equity to avoid adverse U.S. federal income tax consequences. This is consistent with market practice.]
2.4 Private Equity Sponsor
Granite Peak Capital Partners, LP (the "Sponsor"), a limited partnership organized under the laws of the State of Delaware.
• Principal Office: 600 Steamboat Road, Suite 300, Greenwich, Connecticut 06830
The Sponsor, through its Fund IV vehicle (Granite Peak Capital Fund IV, LP), acquired Nexford Industrial Holdings Inc. in January 2019 for an enterprise value of approximately $1,650,000,000, with an equity investment of approximately $725,000,000. As of the date of this term sheet, the equity interests in Holdings are held as follows:
• Granite Peak Capital Fund IV, LP: 92%
• GP Fund IV Co-Invest, LP: 8%
Managing Partners of Granite Peak Capital Partners, LP: Derek Calloway and Vanessa Liu. Deal team lead for the Nexford transaction: Ryan Ostrowski (Principal).
[C&H Comment: No substantive comment on the Sponsor description. However, for purposes of drafting the Credit Agreement, confirm that the definition of "Sponsor" (or "Permitted Holders") includes not only Granite Peak Capital Partners, LP but also its affiliates, managed funds, successor funds, parallel funds, alternative investment vehicles, and co-investment vehicles. This is relevant to the change of control provision (Section 10), permitted holder exceptions in the negative covenants, and related provisions. We will address the Permitted Holders definition in greater detail in the context of the change of control discussion below.]
2.5 Administrative Agent / Collateral Agent
Crescent Harbor Bank, N.A., a national banking association organized under the laws of the United States.
• Address: 320 Federal Street, Boston, Massachusetts 02110
Crescent Harbor Bank, N.A. will serve in the following capacities in connection with the Facility:
(i) Sole lead left arranger and sole bookrunner; (ii) Administrative Agent under the Credit Agreement; and (iii) Collateral Agent under the Security Documents.
Crescent Harbor Deal Team:
• Elaine Prescott, Managing Director, Leveraged Finance Origination
• Thomas Nakamura, Director, Loan Syndication
[C&H Comment: Request clarification on the following points regarding Crescent Harbor's role as Collateral Agent:
First, will Crescent Harbor serve as collateral agent not only under the current first lien Facility but also under any future intercreditor arrangements? If the Borrower subsequently incurs second lien indebtedness or additional first lien pari passu indebtedness, the Collateral Agent will need authority to enter into a first lien/second lien intercreditor agreement or an "equal priority" intercreditor agreement, as applicable, on behalf of the first lien secured parties. Confirm that the Credit Agreement will grant the Collateral Agent such authority without the need for additional consent from individual lenders. This is a standard provision in sponsor-backed TLB documentation and is necessary to ensure the Borrower has future financing flexibility.
Second, confirm that the Administrative Agent and Collateral Agent provisions in the Credit Agreement will include customary protections, limitations of liability, and indemnification provisions for Crescent Harbor in its agency capacities, consistent with market practice for institutional term loan facilities.]
2.6 Joint Lead Arrangers (Anticipated)
In addition to Crescent Harbor Bank, N.A. as sole lead left arranger and sole bookrunner, the following institutions are anticipated to serve as joint lead arrangers with the commitments indicated:
• Ironwood Capital Markets, LLC — Anticipated commitment: $200,000,000
• Address: 1100 Avenue of the Americas, New York, New York 10036
• Northvane Securities, Inc. — Anticipated commitment: $150,000,000
• Address: 200 South Wacker Drive, Chicago, Illinois 60606
[C&H Comment: The term sheet references the possibility that additional joint lead arrangers may be appointed by Crescent Harbor during the syndication process. We request that the term sheet (and the commitment letter) include a provision requiring borrower consent for the appointment of any additional joint lead arrangers. Furthermore, any such additional appointments should not alter the agreed economic terms of the Facility (including pricing, OID, arrangement fees, and flex provisions) or result in any increase in the Borrower's aggregate fee obligations without the Borrower's prior written consent. The titles and roles of joint lead arrangers should be determined in consultation with the Borrower and the Sponsor.]
2.7 Arranger's / Agent's Counsel
Whitfield & Gage LLP
• Lead Partner: Margaret Ashby
• Working Associate: Jonathan Ferris
• Address: 51 West 52nd Street, New York, New York 10019
Whitfield & Gage LLP serves as legal counsel to Crescent Harbor Bank, N.A. in its capacities as arranger, administrative agent, and collateral agent.
2.8 Existing Lender Agent (to be Refinanced)
Atlas Meridian Bank, N.A., serving as administrative agent and collateral agent under the Existing Credit Agreement.
• Address: 500 Liberty Avenue, Pittsburgh, Pennsylvania 15222
• Contact: Sandra Vickers, Managing Director, Portfolio Management
The Existing Credit Agreement is the Credit Agreement dated as of June 14, 2019 (as amended, restated, supplemented, or otherwise modified from time to time), among Nexford Industrial Holdings Inc., as borrower, the subsidiary guarantors party thereto, Atlas Meridian Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto. The Existing Credit Agreement has been amended by:
• First Amendment, dated March 20, 2020
• Second Amendment, dated November 8, 2021
• Third Amendment, dated April 15, 2023
• Fourth Amendment, dated September 12, 2024
The Existing Credit Agreement provides for (i) a first lien term loan facility with an original principal amount of $950,000,000 (approximately $875,000,000 currently outstanding after scheduled amortization) and (ii) a revolving credit facility with commitments of $190,000,000 (currently undrawn). All outstanding obligations under the Existing Credit Agreement will be repaid in full, and all commitments thereunder will be terminated, in connection with the closing of the Facility.
Pursuant to the Fourth Amendment dated September 12, 2024, any applicable prepayment premium or call protection on the existing first lien term loan has been waived. Accordingly, no prepayment premium will be payable to Atlas Meridian or the existing lenders in connection with the refinancing.
2.9 Existing Notes Trustee
Pinnacle Trust Company, serving as trustee under the indenture governing the Borrower's outstanding senior unsecured notes.
• Address: 101 Park Avenue, New York, New York 10178
The Borrower has outstanding $250,000,000 in aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Senior Unsecured Notes"), issued pursuant to an Indenture dated as of November 8, 2021, between Nexford Industrial Holdings Inc. and Pinnacle Trust Company, as trustee (the "Indenture"). The Senior Unsecured Notes are not being refinanced as part of this transaction and will remain outstanding following the closing of the Facility. The Senior Unsecured Notes are subject to the intercreditor arrangements described in Section 15 of this term sheet.
SECTION 3: FACILITY TERMS
3.1 Facility Type and Amount
Facility Type: Senior secured Term Loan B (institutional term loan).
Facility Amount: $1,400,000,000 (One Billion Four Hundred Million Dollars).
The Facility will be a single-draw term loan funded in full at closing. No delayed draw feature, revolving component, swingline sublimit, or letter of credit sublimit is included as part of this Facility.
[C&H Comment: Confirm that this is a single-draw term loan funded in full at closing, with no delayed draw or revolving component. The term sheet does not reference a revolving credit facility as part of this transaction. To the extent the Borrower determines that a revolving credit facility is desirable, such facility would need to be established as an incremental facility under the Credit Agreement (subject to the incremental capacity provisions described in Section 8.1) or pursuant to a separate credit agreement. The term sheet should be clear on this point to avoid any ambiguity.]
3.2 Maturity. Maturity Date: Seven (7) years from the Closing Date — March 28, 2032.
The entire outstanding principal balance of the Term Loan B, together with all accrued and unpaid interest thereon and all other amounts owing under the Credit Agreement, shall be due and payable in full on the Maturity Date.
[C&H Comment: A seven-year maturity is consistent with current market practice for sponsor-backed institutional Term Loan B transactions and is acceptable. We note, however, that the Senior Unsecured Notes due 2028 mature approximately three years and seven months before the TLB Maturity Date (i.e., approximately November 2028 versus March 2032). In certain leveraged credit transactions, the arranger may seek to include a "springing maturity" provision that would accelerate the TLB maturity date to a date that is 91 days (or some other period) prior to the maturity of the Senior Unsecured Notes, unless the Senior Unsecured Notes have been refinanced, repaid, or their maturity extended prior to that trigger date. We request confirmation that no springing maturity provision is contemplated in this transaction. Given the Borrower's strong cash flow generation and the significant time remaining before the Senior Unsecured Notes mature, a springing maturity would be unnecessary and would inappropriately constrain the Borrower's financing flexibility.]
3.3 Amortization. Amortization Rate: 1.00% per annum of the original principal amount of the Facility.
Quarterly Installment Amount: $3,500,000 per quarter ($1,400,000,000 × 1.00% ÷ 4).
First Quarterly Payment Date: June 30, 2025.
Payment Schedule: Equal quarterly installments of $3,500,000, payable on the last business day of each March, June, September, and December, commencing June 30, 2025, with the remaining outstanding principal balance due and payable in full on the Maturity Date.
[C&H Comment: The 1.00% per annum amortization rate is standard for institutional Term Loan B facilities in the current market. The quarterly installment amount and payment schedule are acceptable as presented.]
3.4 Interest Rate
Benchmark Rate: Term SOFR (Secured Overnight Financing Rate, term rate).
Applicable Margin: 400 basis points (4.00%) per annum.
SOFR Floor: 0.75% per annum.
SOFR Credit Spread Adjustment:
• 10 basis points (0.10%) for 1-month Term SOFR
• 15 basis points (0.15%) for 3-month Term SOFR
Interest Periods: 1-month, 3-month, or 6-month (at the Borrower's election), subject to availability.
Interest Rate Calculation: The interest rate applicable to any interest period shall be the greater of (i) Term SOFR for the applicable interest period (as published by CME Group Benchmark Administration Limited) and (ii) 0.75%, plus the applicable credit spread adjustment, plus the Applicable Margin of 4.00%.
[C&H Comment: Several comments on the interest rate provisions:
(1) Daily Simple SOFR. Request inclusion of a daily simple SOFR option in addition to Term SOFR. While Term SOFR is the predominant benchmark for institutional term loan facilities, borrowers increasingly benefit from having a daily simple SOFR option available for operational flexibility, particularly for voluntary prepayments and short-term borrowing management. Daily simple SOFR should be offered at the same margin (SOFR + 400 bps) without a credit spread adjustment (as the CSA is a feature specific to Term SOFR to approximate the former LIBOR-to-SOFR differential).
(2) Credit Spread Adjustments. Confirm that the SOFR credit spread adjustments are explicitly enumerated in the term sheet and the Credit Agreement (10 bps for 1-month Term SOFR and 15 bps for 3-month Term SOFR) and will be fixed for the life of the Facility. These adjustments should not be subject to modification or recalculation by the Administrative Agent.
(3) 6-Month Interest Period. Confirm that the 6-month interest period will be available to the Borrower at its election without requiring lender consent or Administrative Agent approval. In certain credit agreements, the 6-month interest period is made available only with the consent of "each Lender" or "each affected Lender," which effectively renders the option unavailable. We request that the 6-month option be available without condition.
(4) Floor Mechanics. Note that if Term SOFR is at or below 0.75%, the SOFR floor applies. The effective minimum all-in interest rate on the Facility would therefore be approximately 5.75% for 1-month interest periods (0.75% floor + 0.10% CSA + 4.00% margin = 4.85%) — note, correction: effective minimum all-in rate is 4.85% for 1-month SOFR (0.75% + 0.10% + 4.00%) and 4.90% for 3-month SOFR (0.75% + 0.15% + 4.00%). Under current market conditions, with SOFR at approximately 4.35%, the floor is not binding, and the approximate all-in rate is 8.45% for 1-month SOFR (4.35% + 0.10% + 4.00%).
(5) Interest Calculation Convention. Confirm that interest will be calculated on the basis of Actual/360 (actual days elapsed over a 360-day year), which is the standard convention for SOFR-based institutional term loans. Confirm that interest payment dates will be the last business day of each interest period (or, for interest periods longer than three months, the three-month anniversary dates and the last day of such interest period).]
3.5 Default Rate
Upon the occurrence and during the continuance of an Event of Default, interest on all outstanding obligations under the Credit Agreement shall accrue at a rate equal to 200 basis points (2.00%) per annum above the otherwise applicable interest rate (the "Default Rate").
[C&H Comment: Request that the Default Rate not be applied automatically upon the occurrence of an Event of Default but rather only upon written notice from the Administrative Agent (acting at the direction of the Required Lenders). The application of default interest should be a deliberate decision made by the Required Lenders, not an automatic consequence that may be triggered by technical or curable defaults. The term sheet should provide that default interest shall accrue only "after written notice from the Administrative Agent (at the direction of the Required Lenders) following the occurrence and during the continuance of an Event of Default." This is consistent with borrower-favorable market practice for institutional TLB facilities.]
3.6 SOFR Breakage
The Borrower shall indemnify each Lender for any loss, cost, or expense (including, without limitation, any loss of anticipated profits) incurred by such Lender as a result of (i) any prepayment of a Term SOFR loan on a day other than the last day of the applicable interest period, (ii) any failure by the Borrower to borrow on a date specified in a notice of borrowing, or (iii) any failure by the Borrower to prepay on a date specified in a notice of prepayment.
[C&H Comment: Confirm that the SOFR breakage indemnification provision will follow customary market formulations for institutional term loan facilities. The Borrower should not be liable for breakage costs or losses resulting from (i) the Administrative Agent's failure to timely fund or disburse loan proceeds, (ii) any lender's failure to fund its ratable share of any borrowing, or (iii) any circumstance not directly attributable to the Borrower's actions or omissions. Breakage costs should be calculated on a commercially reasonable basis and should be documented by the applicable lender upon the Borrower's request.]
SECTION 4: FEES
4.1 Arrangement Fee
Amount: 50 basis points (0.50%) on the full Facility amount.
Dollar Amount: $7,000,000 ($1,400,000,000 × 0.50%).
Payable to: Crescent Harbor Bank, N.A.
Timing: Payable in full at closing from the proceeds of the Facility.
The arrangement fee is compensation to Crescent Harbor Bank, N.A. for its services as sole lead left arranger and sole bookrunner in connection with the structuring, arrangement, and syndication of the Facility.
[C&H Comment: Confirm that this arrangement fee is separate from and in addition to the Original Issue discount (OID) described in Section 4.2 below. The arrangement fee is payable solely to Crescent Harbor in its capacity as arranger and does not constitute compensation to syndicate lenders. Confirm that the arrangement fee is non-refundable and fully earned upon closing, with no clawback or rebate provisions. The arrangement fee should be documented in the fee letter between the Borrower and Crescent Harbor, with the specific amount confidential as between those parties and not disclosed to syndicate lenders.]
4.2 Original Issue discount (OID) / Upfront Fee to Lenders
Issue Price: 99.50 (50 basis points OID).
Aggregate OID: $7,000,000 ($1,400,000,000 × 0.50%).
The Term Loan B will be issued at a price of 99.50% of par, resulting in aggregate net proceeds to the Borrower of $1,393,000,000 (before deduction of fees and expenses). The 50 basis point OID represents upfront compensation to participating lenders in the syndicate.
[C&H Comment: Confirm that the OID is the sole upfront fee payable to syndicate lenders and that no additional upfront, commitment, or participation fees are payable to lenders other than as described in Section 4.3 below (which requires clarification — see comment therein). Confirm also that the OID is subject to the market flex provisions described in Section 19, and that the maximum downward adjustment to the issue price under the flex provisions is to 99.00 (i.e., a maximum OID of 100 basis points).]
4.3 Upfront Fee to Participating Lenders
Amount: 100 basis points (1.00%) to participating lenders in the syndication.
[C&H Comment: This is a critical economic point requiring immediate clarification from Crescent Harbor. The term sheet lists both (a) a 50 basis point OID (Section 4.2) and (b) a 100 basis point upfront fee to participating lenders (this Section 4.3). It is unclear from the term sheet whether these amounts are cumulative (i.e., lenders receive a total of 150 basis points in upfront economics) or whether the 100 basis point figure is inclusive of the 50 basis point OID (i.e., lenders receive 100 basis points total, of which 50 bps is structured as OID and 50 bps is a separate fee).
Our initial understanding, based on preliminary discussions with the Crescent Harbor deal team, is that the OID (50 bps) represents the upfront compensation to lenders reflected in the issue price, and the 100 bps referenced in this section is an additional participation fee payable to lenders who commit during the primary syndication. If this interpretation is correct, the total upfront economics to lenders are 150 basis points, which is at the higher end of the current market range for B1/B+-rated sponsor-backed TLB facilities of this size. This point should be discussed with the client (Michelle Kaplan, CFO, and Priya Mehta, VP Treasury) to confirm alignment with the economics approved in the engagement letter.
We request that the term sheet clearly distinguish between (i) the OID (reflected in the issue price and applicable to all lenders), (ii) any additional upfront or participation fee payable to lenders during syndication, and (iii) the arrangement fee payable solely to Crescent Harbor. The aggregate lender economics should be presented in a single, transparent summary.]
4.4 Administrative Agent Fee
An annual administrative agent fee shall be payable to Crescent Harbor Bank, N.A. in its capacity as Administrative Agent and Collateral Agent under the Credit Agreement.
[C&H Comment: Request disclosure of the annual administrative agent fee amount. The term sheet does not specify the dollar amount of the agent fee. We understand that the agent fee will be set forth separately in the fee letter between the Borrower and Crescent Harbor, anticipated to be executed on or about February 18, 2025. Confirm that the agent fee is reasonable and consistent with market practice for institutional term loan facilities of this size. For reference, annual administrative agent fees for TLB facilities in the $1.0–2.0 billion range typically range from $50,000 to $150,000 per annum. The agent fee should be payable annually in advance on each anniversary of the closing date.]
SECTION 5: PREPAYMENT PROVISIONS
5.1 Voluntary Prepayment
The Borrower may voluntarily prepay the Term Loan B, in whole or in part, at any time and from time to time, at par (100% of the principal amount being prepaid), without premium or penalty.
Exception — Soft Call Premium: A prepayment premium of 1.00% of the principal amount prepaid (the "Soft Call") shall apply to any voluntary prepayment made in connection with a Repricing Transaction occurring within the first six (6) months after the Closing Date.
[C&H Comment: The 101 soft call for repricing transactions within the first six months is standard for institutional TLB facilities and is acceptable in principle. However, we request the following clarifications and refinements to the scope of the soft call provision:
(1) Confirm that the 101 soft call applies only to Repricing Transactions (as defined below) occurring within the first six months after closing. It should not apply to voluntary prepayments funded from any source other than a repricing transaction, including but not limited to (a) internally generated cash flow, (b) net cash proceeds of asset sales, (c) equity contributions from the Sponsor or other equity holders, (d) proceeds of an initial public offering, or (e) any other source.
(2) Request that the term sheet include an explicit definition of "Repricing Transaction." We propose the following formulation: "A 'Repricing Transaction' means (i) any amendment to the Credit Agreement that reduces the effective yield (including margin, OID, and upfront fees) on the Term Loan B, (ii) any refinancing of all or a portion of the Term Loan B with indebtedness that has a lower effective yield than the Term Loan B, or (iii) any other similar transaction the primary purpose of which is to reduce the effective interest cost of the Term Loan B."
(3) Request that the definition of "Repricing Transaction" explicitly exclude the following: (i) mandatory prepayments (including ECF sweeps, asset sale prepayments, and insurance/condemnation prepayments), (ii) prepayments in connection with a change of control (which should be at par without any premium), (iii) prepayments funded from the net cash proceeds of an IPO or other equity issuance, and (iv) prepayments in connection with a permitted acquisition or other transformative transaction. These exclusions ensure that the soft call operates solely to protect lenders against repricing risk during the initial syndication period and does not inadvertently penalize the Borrower for deleveraging or strategic transactions.]
5.2 Mandatory Prepayments
(a) Excess Cash Flow (ECF) Sweep:
The Borrower shall prepay the Term Loan B in an amount equal to a specified percentage of Excess Cash Flow for each fiscal year, determined as follows:
The Excess Cash Flow sweep shall be tested annually based on audited financial statements for each fiscal year, with the first test applicable to the fiscal year ending December 31, 2025 (which shall be pro rated from the Closing Date). The mandatory prepayment amount, if any, shall be due and payable within ten (10) business days following delivery of the annual audited financial statements and the related compliance certificate.
[C&H Comment: Several significant comments on the ECF sweep provision:
(1) Deductions from ECF. Request that Excess Cash Flow be calculated net of the following items, in each case to the extent actually paid in cash during the applicable fiscal year (or, with respect to reinvestment amounts, committed to be paid during the applicable reinvestment period): (i) voluntary prepayments of the Term Loan B and any other first lien indebtedness made during the fiscal year (to credit the Borrower for voluntary deleveraging), (ii) cash used for permitted acquisitions and permitted investments during the fiscal year (and within the 365-day reinvestment period following the end of the fiscal year, provided that such amounts are committed), (iii) capital expenditures in excess of amounts deducted in calculating Consolidated Net Income, (iv) cash taxes actually paid during the fiscal year (to the extent not already deducted), (v) cash restructuring charges and severance payments, (vi) repayment of debt (other than the Term Loan B) to the extent required by the terms thereof, and (vii) cash contributions to pension and other employee benefit plans. These deductions are customary in sponsor-backed TLB facilities and ensure that the ECF calculation reflects the Borrower's actual discretionary cash flow.
(2) De Minimis Threshold. Request a de minimis threshold of $10,000,000, below which no ECF prepayment shall be required. This avoids the administrative burden and cost of processing immaterial prepayment amounts.
(3) Current Leverage. Note that at pro forma closing first lien net leverage of approximately 3.38x, the ECF sweep rate would be 0% under the leverage-based step-down schedule. This is a favorable positioning for the Borrower and suggests that no ECF sweep payment will be required unless the Borrower's leverage increases above 3.50x. However, we should ensure that the ECF definition and the deductions available are robust to protect against future scenarios.
(4) Testing Mechanics. Confirm that (i) ECF is tested annually (not quarterly) based on audited financial statements, (ii) the first test period is the fiscal year ending December 31, 2025 (pro rated from closing), and (iii) the compliance certificate delivered with the annual financials will include a detailed calculation of ECF and the applicable prepayment amount, if any.]
(b) Asset Sales:
The Borrower shall prepay the Term Loan B in an amount equal to 100% of Net Cash Proceeds from any asset disposition (other than dispositions in the ordinary course of business and dispositions below the de minimis threshold), subject to the following:
Reinvestment Rights: The Borrower shall have the right to reinvest Net Cash Proceeds in assets useful in the Borrower's business (or in permitted acquisitions or capital expenditures) within 365 days following receipt thereof, which period shall be extended to 545 days if the Borrower has entered into a binding commitment to reinvest such proceeds within the initial 365-day period and such reinvestment is completed within such 545-day period.
Annual De Minimis Basket: $25,000,000 per fiscal year. Net Cash Proceeds from asset dispositions that do not exceed $25,000,000 in the aggregate in any fiscal year shall not be subject to mandatory prepayment.
[C&H Comment: We propose the following modifications to the asset sale mandatory prepayment provision:
(1) De Minimis Basket. Request that the annual de minimis basket be increased from $25,000,000 to $35,000,000. The Borrower operates 14 manufacturing facilities across North America and may from time to time dispose of individual equipment, parcels of real property, or non-core assets with aggregate proceeds in the ordinary course that should not trigger a mandatory prepayment obligation. A $35,000,000 threshold is more appropriate for a business of this size.
(2) Net Cash Proceeds Definition. Request that "Net Cash Proceeds" be defined to exclude (i) reasonable and customary costs and expenses of sale (including brokerage commissions, investment banking fees, legal fees, and title and transfer costs), (ii) taxes estimated to be payable as a result of the disposition, (iii) amounts required to be applied to the repayment of indebtedness secured by a lien on the disposed asset (to the extent such lien is permitted under the Credit Agreement), (iv) amounts reserved for post-closing purchase price adjustments, indemnification obligations, and escrow holdbacks (with a true-up mechanism when such reserves are released), and (v) amounts required to be distributed to minority interest holders in a non-wholly-owned subsidiary conducting the disposition.
(3) Sale-Leaseback Exception. Request a specific carve-out from the asset sale mandatory prepayment for sale-leaseback transactions in an aggregate amount not to exceed $50,000,000 at any time outstanding. Sale-leaseback transactions are a common financing technique in the industrial manufacturing sector and should be accommodated within the negative covenants without triggering mandatory prepayment.
(4) Leverage-Based Step-Down. Consider requesting a leverage-based step-down to the asset sale sweep percentage (e.g., 75% when first lien net leverage is below 3.50x and 50% when below 3.00x), consistent with the step-down mechanics applicable to the ECF sweep. While not all TLB facilities include leverage-based step-downs for asset sale sweeps, they are increasingly common and would provide additional flexibility to the Borrower.]