PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Claudia Merritt, Responsible Partner, Banking & Finance
FROM: Marcus Leung, Lead Associate, Banking & Finance
DATE: February 13, 2025
RE: Review and Analysis of $1,400,000,000 Commitment Letter — Crescent Harbor Bank, N.A. to Nexford Industrial Holdings Inc.
Matter No.: 1005-00001
Client/Matter Code: IBL-NIH-2025-031
CC: Ian Blackwood (Billing Partner); Sophie Tremblay (Working Associate)
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I. Executive Summary
The purpose of this memorandum is to present a comprehensive review and analysis of the commitment letter dated February 14, 2025 (anticipated execution date) from Crescent Harbor Bank, N.A. ("Crescent Harbor" or the "Commitment Party") to Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower") committing to provide a $1,400,000,000 senior secured Term Loan B facility (the "Commitment Letter"). This memorandum addresses the material terms of the Commitment Letter, evaluates the conditions precedent to closing, identifies open issues, and sets forth recommendations for the client's consideration.
Transaction Overview. Crescent Harbor is committing to the full $1,400,000,000 principal amount of the Term Loan B facility, with a target final hold of $175,000,000 (representing approximately 12.5% of the total facility amount). The remainder of the commitment will be syndicated to a group of institutional lenders and other financial institutions in advance of closing. Crescent Harbor will serve in the following capacities in connection with the facility: sole lead left arranger and bookrunner, administrative agent, and collateral agent.
Principal Contacts. Crescent Harbor's principal contacts for the transaction are Elaine Prescott, Managing Director, Leveraged Finance Origination, and Thomas Nakamura, Director, Loan Syndication, both located at 320 Federal Street, Boston, Massachusetts 02110. Counterparty counsel for Crescent Harbor is Whitfield & Gage LLP ("W&G"), with Margaret Ashby as lead partner, located at 51 West 52nd Street, New York, New York 10019.
Transaction Purpose. The proceeds of the Term Loan B are to be used to (a) refinance Nexford's existing $875,000,000 first lien term loan and terminate the existing $190,000,000 revolving credit facility (both currently held by Atlas Meridian Bank, N.A.), (b) fund a dividend recapitalization of approximately $335,000,000 to Granite Peak NIH Holdings, LLC ("Holdings") and thence to Granite Peak Capital Partners, LP (the "Sponsor") and co-investors, (c) pay transaction fees and expenses, and (d) provide additional cash to the Borrower's balance sheet.
Overall Assessment. Based on our review, the Commitment Letter is generally consistent with the agreed term sheet delivered by Crescent Harbor on February 5, 2025 and marked by our office on February 10, 2025. The economic terms, structural provisions, and conditions precedent are largely aligned with expectations. However, several areas warrant further negotiation or client instruction, as addressed in detail in Sections XIII and XIV of this memorandum.
Recommendation. We recommend that Nexford execute the Commitment Letter upon resolution of the limited open items identified herein. The companion fee letter analysis is addressed in a separate Fee Letter Review Memorandum, which is expected to be delivered on February 17, 2025.
II. Structure of the Commitment Letter
A. Components. The Commitment Letter consists of the following principal components:
1. Commitment Letter (Main Body). The main body of the Commitment Letter sets forth the commitment of Crescent Harbor to provide the Term Loan B, establishes the roles of Crescent Harbor in the transaction, describes the syndication rights and process, and addresses the terms of engagement between the parties, including confidentiality, indemnification, expense reimbursement, exclusivity, and termination.
2. Exhibit A: Summary of Terms and Conditions (the "Term Sheet"). Exhibit A to the Commitment Letter is a detailed summary of the principal terms and conditions of the proposed Term Loan B facility. The Term Sheet addresses the economic terms, structural provisions, covenants, events of default, and other material provisions to be incorporated into the definitive Credit Agreement and ancillary documentation. The Term Sheet is referenced throughout this memorandum and is analyzed in detail in Sections III and XI.
3. Exhibit B: Conditions Precedent to Closing. Exhibit B to the Commitment Letter sets forth the conditions precedent that must be satisfied (or, where applicable, waived by Crescent Harbor) on or prior to the closing date in order for Crescent Harbor's commitment to fund the Term Loan B to become effective. The conditions precedent are analyzed in detail in Section IV of this memorandum.
4. Separate Fee Letter. The fee letter is a separate agreement between Crescent Harbor and Nexford that addresses the arrangement fee, market flex provisions, and related economic terms. The fee letter is not attached to or incorporated into the Commitment Letter as an exhibit. It is subject to enhanced confidentiality provisions and is being reviewed separately. Our analysis of the fee letter will be set forth in a separate Fee Letter Review Memorandum to be delivered on February 17, 2025.
B. Parties. The principal parties to the Commitment Letter and the related transaction are as follows:
Commitment Party: Crescent Harbor Bank, N.A., a national banking association organized under the laws of the United States, acting in its capacities as sole lead left arranger, bookrunner, administrative agent, and collateral agent for the Term Loan B facility.
Borrower: Nexford Industrial Holdings Inc., a corporation organized and existing under the laws of the State of Delaware (EIN: 36-4178552; Delaware Secretary of State File No. 5765432), with its principal place of business and headquarters located at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford is the primary obligor under the Term Loan B facility.
Holdings / Direct Parent: Granite Peak NIH Holdings, LLC, a limited liability company organized and existing under the laws of the State of Delaware (EIN: 85-3291047; Delaware Secretary of State File No. 7234891), with its registered office c/o Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801. Holdings is the direct parent of Nexford and serves as a guarantor and equity pledgor under the credit facility.
Sponsor: Granite Peak Capital Partners, LP, a private equity fund (referenced throughout the Commitment Letter and Term Sheet as the "Sponsor"). The Sponsor is the ultimate beneficial owner of Holdings and, through Holdings, of the Borrower. The Sponsor's role in the transaction is as the recipient of the dividend recapitalization proceeds (through Holdings) and as a participant in the syndication cooperation obligations.
C. Governing Law
The Commitment Letter is governed by and construed in accordance with the laws of the State of New York. This is consistent with the governing law provision contemplated for the definitive Credit Agreement and related documentation. The selection of New York law is standard for leveraged finance commitment letters and credit facilities of this type and raises no issues.
III. Commitment Amount and Facility Terms
A. Commitment. Crescent Harbor commits to provide the full $1,400,000,000 principal amount of the Term Loan B facility. As noted above, Crescent Harbor will serve as sole lead left arranger and bookrunner, and will also act as administrative agent and collateral agent. This means that Crescent Harbor bears the entirety of the underwriting risk at the time of execution of the Commitment Letter, with the intention of syndicating the facility to achieve a target final hold of $175,000,000, which represents approximately 12.5% of the total facility amount. The Commitment Letter expressly reserves to Crescent Harbor the right to syndicate the facility down to its target final hold in accordance with the syndication provisions described in Section V of this memorandum.
Importantly, the Commitment Letter does not condition the closing of the Term Loan B on successful syndication. This means that if Crescent Harbor is unable to syndicate all or a portion of the facility prior to closing, Crescent Harbor is nevertheless obligated to fund the full $1,400,000,000, subject only to the satisfaction (or waiver) of the conditions precedent set forth in Exhibit B. This is a significant point of comfort for the Borrower and the Sponsor, as it provides certainty of funding at closing.
B. Key Economic Terms per Term Sheet (Exhibit A)
The Term Sheet sets forth the following key economic terms for the Term Loan B facility:
Facility Type: Senior secured Term Loan B (institutional term loan). The facility is structured as a standard institutional term loan, commonly referred to in the leveraged finance market as a "Term Loan B" or "TLB," designed to be syndicated to institutional investors including CLO vehicles, loan funds, and other non-bank lenders.
Amount: $1,400,000,000.
Maturity: Seven (7) years from the closing date. Based on the target closing date of March 28, 2025, the scheduled maturity date of the Term Loan B would be March 28, 2032. This seven-year tenor is standard for institutional term loans in the current market.
Interest Rate: The Term Loan B will bear interest at a rate per annum equal to Term SOFR plus 400 basis points (4.00% margin). This pricing is within the expected range for a Term Loan B facility of this size and credit profile and is consistent with the pricing agreed upon in the February 5 term sheet.
SOFR Floor: 0.75%. The SOFR floor establishes a minimum reference rate of 75 basis points, providing a baseline interest rate even in a low interest rate environment. As of the date of this memorandum, the applicable 1-month Term SOFR rate is approximately 4.32%, well above the floor.
SOFR Credit Spread Adjustment: 10 basis points for 1-month Term SOFR; 15 basis points for 3-month Term SOFR. These credit spread adjustments are added to the applicable Term SOFR rate to account for the transition from LIBOR-based pricing to SOFR-based pricing and are consistent with current market conventions.
Default Rate: An additional 200 basis points (2.00%) above the otherwise applicable interest rate. The default rate applies automatically upon the occurrence and during the continuance of an Event of Default. This is standard for facilities of this type.
Amortization: 1.00% per annum of the original principal amount, payable in equal quarterly installments. Based on the $1,400,000,000 facility amount, each quarterly amortization payment would be $3,500,000 ($1,400,000,000 × 1.00% ÷ 4). The remaining principal balance is due at maturity. This level of amortization is consistent with current market standards for institutional Term Loan B facilities.
OID / Upfront Fee: 50 basis points, resulting in an issue price of 99.50 (i.e., the Term Loan B will be funded at 99.50% of par). The aggregate OID based on the full facility amount is $7,000,000 ($1,400,000,000 × 0.50%).
Arrangement Fee: 50 basis points on the total facility amount, payable to Crescent Harbor as sole lead left arranger. The aggregate arrangement fee is $7,000,000. The arrangement fee is addressed in the separate fee letter and will be analyzed in our Fee Letter Review Memorandum.
Upfront Fee to Participating Lenders: 100 basis points (1.00%) offered to lenders joining the syndicate. This upfront fee is a standard market incentive for lender participation in the syndication process.
C. Use of Proceeds
The Commitment Letter sets forth the intended use of proceeds as follows. We have reconciled the sources and uses as stated in the Commitment Letter:
The transaction fees and expenses of approximately $38,625,000 consist of the following estimated components: arrangement fee ($7,000,000), OID ($7,000,000), and legal, advisory, rating agency, and other expenses (approximately $24,625,000). We note that the actual fees and expenses may vary at closing depending on the final legal and advisory costs, the timing of the closing, and any adjustments resulting from the exercise of market flex provisions.
The sources and uses reconciliation appears balanced and consistent with the overall transaction structure. The refinancing of the existing Atlas Meridian term loan is the primary use of proceeds, representing approximately 62.8% of the total facility. The dividend recapitalization to the Sponsor represents approximately 23.9% of proceeds, and the remaining proceeds are allocated to fees, expenses, and balance sheet cash.
D. Pro Forma Leverage
Based on the information set forth in the Commitment Letter and Term Sheet, the pro forma leverage statistics at closing are as follows:
First Lien Net Leverage at Closing: Approximately 3.38x, calculated as ($1,400,000,000 less $100,000,000 pro forma cash) divided by $385,000,000 LTM Adjusted EBITDA as of December 31, 2024. This leverage level provides approximately 162 basis points of cushion below the 5.00x first lien net leverage springing financial covenant.
Total Net Leverage at Closing: Approximately 4.03x, calculated as ($1,400,000,000 Term Loan B plus $250,000,000 Senior Unsecured Notes less $100,000,000 pro forma cash) divided by $385,000,000 LTM Adjusted EBITDA. Total net leverage accounts for the Borrower's existing $250,000,000 7.250% Senior Unsecured Notes due 2028 (Pinnacle Trust Company, as trustee), which are not being refinanced as part of this transaction and will remain outstanding following the closing.
We note that the pro forma leverage statistics are based on the LTM Adjusted EBITDA figure of $385,000,000, which includes $28,000,000 in permitted add-backs (detailed in Section IV.C below). These add-backs should be reviewed carefully in the context of the definitive Credit Agreement to ensure that the definition of "Adjusted EBITDA" and the permitted add-backs therein are consistent with the projections used in the Commitment Letter.
IV. Conditions Precedent to Closing (Exhibit B)
Exhibit B to the Commitment Letter sets forth the conditions precedent that must be satisfied or waived on or prior to the closing date. The conditions are organized below by category and analyzed for completeness, consistency, and potential issues.
A. Documentation Conditions
The following documentation conditions must be satisfied at or prior to closing:
1. Credit Agreement. Execution and delivery of the definitive Credit Agreement, which must be substantially consistent with the Term Sheet attached as Exhibit A and governed by the laws of the State of New York. The Credit Agreement is expected to be prepared and circulated in initial draft form by W&G on or about February 24, 2025. Our team will need to review and turn that draft promptly to maintain the transaction timeline.
2. Guarantee Agreement. Execution and delivery of the Guarantee Agreement by Holdings (Granite Peak NIH Holdings, LLC) and each Subsidiary Guarantor. There are currently eleven (11) Subsidiary Guarantors identified in the Commitment Letter:
(i) Nexford Precision Components, Inc.;
(ii) Nexford Engineered Systems, LLC;
(iii) Nexford Coatings & Surface Technologies, Inc.;
(iv) Nexford Manufacturing Services, LLC;
(v) Nexford Properties, LLC;
(vi) Nexford International Holdings, Inc.;
(vii) Clearfield Tool & Die, Inc.;
(viii) Summit Industrial Fabrication Co.;
(ix) Ridgepoint Specialty Coatings, LLC;
(x) Lakeshore Precision Engineering, Inc.; and
(xi) Nexford Manufacturing Services, LLC.
We note that "Nexford Manufacturing Services, LLC" appears to be listed twice in the Commitment Letter (items (iv) and (xi) above). This appears to be a typographical error in the Commitment Letter that should be raised with W&G. We will need to confirm the identity of the eleventh Subsidiary Guarantor and ensure that the guarantee coverage is complete.
3. Security Agreement and Pledge Agreements. Execution and delivery of the Security Agreement and Pledge Agreements granting a first-priority security interest in substantially all assets of the Borrower and the Guarantors. The security package is described in greater detail in Section XI.I of this memorandum.
4. intellectual Property Security Agreement. Execution and delivery of a separate intellectual Property Security Agreement covering the registered intellectual property of the Borrower and the Guarantors, as applicable.
5. Holdings Pledge Agreement. Granite Peak NIH Holdings, LLC is required to pledge 100% of the equity interests in Nexford Industrial Holdings Inc. pursuant to a Holdings Pledge Agreement.
6. CFC Holdco Limited Pledge. Nexford International Holdings, Inc. (a domestic "CFC holdco" entity) is required to pledge 65% of the voting equity interests and 100% of the non-voting equity interests in Nexford Canada Holdings ULC, a Canadian unlimited liability company that constitutes a first-tier foreign subsidiary. This 65% voting / 100% non-voting limitation is standard under leveraged finance documentation to avoid adverse U.S. tax consequences arising from the deemed pledge of more than 65% of the voting stock of a "controlled foreign corporation."
7. Deposit Account and Securities Account Control Agreements. Execution and delivery of control agreements with respect to deposit accounts and securities accounts of the Borrower and the Guarantors. These control agreements are necessary to perfect the Administrative Agent's security interest in deposit accounts and securities accounts under Article 9 of the Uniform Commercial Code.
8. Intercreditor Agreement. Execution and delivery of a First Lien / Unsecured Intercreditor Agreement between Crescent Harbor Bank, N.A. (in its capacity as first lien collateral agent under the Term Loan B) and Pinnacle Trust Company (in its capacity as trustee under the Senior Unsecured Notes Indenture). This agreement will govern the relative rights and priorities of the first lien secured creditors and the unsecured noteholders with respect to the collateral and proceeds thereof.
B. Corporate / Organizational Conditions
The following corporate and organizational conditions must be satisfied at or prior to closing:
1. Good Standing Certificates. Delivery of good standing certificates (or certificates of status or existence, as applicable) for all Loan Parties from the respective Secretaries of State (or equivalent filing authorities) in their jurisdictions of organization, dated within five (5) business days of the closing date.
2. Certified Organizational Documents. Delivery of certified copies of the organizational documents of all Loan Parties, including certificates of incorporation (for corporate entities), certificates of formation (for limited liability companies), bylaws (for corporate entities), and LLC agreements (for limited liability companies). These documents must be certified as of a recent date by the applicable Secretary of State and, in the case of bylaws and LLC agreements, by the secretary or other appropriate officer of the relevant Loan Party.
3. Secretary's Certificates. Delivery of secretary's certificates (or equivalent officer's or manager's certificates) for the Borrower, Holdings, and each Subsidiary Guarantor, in each case certifying as to (i) incumbency and specimen signatures of officers or managers authorized to execute the loan documents, (ii) the resolutions adopted by the board of directors, managers, or members (as applicable) authorizing the transaction, and (iii) the current organizational documents of the entity.
4. Board Resolutions of Nexford. The board of directors of Nexford adopted resolutions on January 13, 2025, authorizing the entry into the Term Loan B facility, the refinancing of the existing Atlas Meridian indebtedness, the dividend recapitalization, and the execution and delivery of all related documents. These resolutions should be reviewed to confirm their scope and sufficiency.
5. Manager/Member Resolutions of Holdings. The manager(s) or member(s) of Granite Peak NIH Holdings, LLC must adopt resolutions authorizing the execution and delivery of the guarantee, the equity pledge of Nexford equity interests, and the related loan documents.
6. Subsidiary Guarantor Resolutions. Each Subsidiary Guarantor must adopt resolutions of its board of directors or managers (as applicable) authorizing the execution and delivery of the guarantee, security agreement, and other ancillary loan documents.
C. Financial / Diligence Conditions
The following financial and diligence conditions must be satisfied at or prior to closing:
1. Audited Financial Statements. Delivery of audited consolidated financial statements of Nexford for the three most recently completed fiscal years: fiscal year 2022 (ended December 31, 2022), fiscal year 2023 (ended December 31, 2023), and fiscal year 2024 (ended December 31, 2024). These financial statements must include balance sheets, income statements, statements of cash flows, and accompanying notes, and must be audited by the Borrower's independent auditor.
2. Unaudited Interim Financial Statements. Delivery of unaudited interim consolidated financial statements for any fiscal quarter ended more than forty-five (45) days prior to the closing date. Assuming a March 28, 2025 closing date, this would require delivery of quarterly financial statements through the fiscal quarter ended December 31, 2024, if not already covered by the audited annual statements, as well as potentially any stub period if applicable.
3. Independent Auditor. The Borrower's independent auditor is Ashworth & Kendrick LLP (engagement partner: Helen Yamamoto, CPA), located at 200 South Michigan Avenue, Chicago, Illinois 60604. As discussed in Section XIV below, it is critical to confirm that the FY2024 audited financial statements will be completed and available well in advance of the March 28, 2025 target closing date.
4. LTM Adjusted EBITDA. The Commitment Letter references an LTM Adjusted EBITDA of $385,000,000 as of December 31, 2024. This figure consists of $357,000,000 in reported EBITDA plus $28,000,000 in permitted add-backs, as follows:
• Acquisition-related costs: $12,000,000
• Non-recurring restructuring charges: $8,500,000
• Sponsor management fees: $4,500,000
• Integration costs: $3,000,000
• Total permitted add-backs: $28,000,000
The permitted add-backs represent approximately 7.8% of the reported EBITDA figure and approximately 7.3% of the total Adjusted EBITDA. We recommend reviewing the composition and documentation of these add-backs carefully in connection with the preparation of the definitive Credit Agreement to ensure that they fall within the permitted add-back categories and any applicable caps.
5. Additional Financial Metrics. The Commitment Letter also references the following financial metrics for Nexford as of the LTM period ended December 31, 2024: revenue of $2,100,000,000; gross margin of 32.0%; and capital expenditures of $78,000,000.
6. Solvency Certificate. Michelle Kaplan, Chief Financial Officer of Nexford, is required to deliver a solvency certificate at closing certifying that Nexford and its subsidiaries, on a consolidated basis, are solvent after giving effect to the transactions contemplated by the Commitment Letter, including the Term Loan B, the refinancing, and the dividend recapitalization. The solvency certificate must certify that (i) the fair value of the assets of the Borrower and its subsidiaries, on a consolidated basis, exceeds their total liabilities, (ii) the present fair saleable value of the assets of the Borrower and its subsidiaries, on a consolidated basis, is not less than the amount that will be required to pay their probable liabilities on their debts and other obligations as they become absolute and matured, (iii) the Borrower and its subsidiaries, on a consolidated basis, are able to pay their debts and other obligations as they become absolute and matured, and (iv) the Borrower and its subsidiaries, on a consolidated basis, are not engaged in business or a transaction, and do not intend to engage in a business or a transaction, for which their property would constitute an unreasonably small capital.
D. Legal Opinion Conditions
The following legal opinion conditions must be satisfied at or prior to closing:
1. Calderwood & Harkness LLP Opinion. Our firm is required to deliver a legal opinion on behalf of the Borrower addressing (i) the due authorization, execution, and delivery of the loan documents by the Borrower and the Guarantors, (ii) the enforceability of the Credit Agreement and related loan documents under New York law, and (iii) the perfection of the security interests granted pursuant to the Security Agreement under the Uniform Commercial Code. We have begun preliminary work on the opinion and will circulate a draft opinion letter in connection with our review of the first draft Credit Agreement.
2. Hargrove & Whitmore LLP Opinion (Illinois Local Counsel). Hargrove & Whitmore LLP (Robert Kimura) is engaged as Illinois local counsel to deliver a legal opinion addressing the enforceability of the loan documents under Illinois law and the perfection of security interests in assets located in or governed by the laws of the State of Illinois. This opinion will be particularly relevant in connection with the mortgaged properties located in Cook County and Winnebago County, Illinois.
3. Briarcliff Legal Group PA Opinion (Delaware Local Counsel). Briarcliff Legal Group PA (Catherine Ellsworth) is engaged as Delaware local counsel to deliver a legal opinion addressing the organization, good standing, and authority of the Delaware-organized Loan Parties, including Nexford Industrial Holdings Inc. (Delaware corporation) and Granite Peak NIH Holdings, LLC (Delaware limited liability company).
E. Collateral / Perfection Conditions
The following collateral and perfection conditions must be satisfied at or prior to closing (or, in the case of certain post-closing items, within the specified post-closing period):
1. UCC-1 Financing Statements. Filing of UCC-1 Financing Statements naming each Loan Party as debtor and Crescent Harbor Bank, N.A. (as collateral agent) as secured party in all applicable jurisdictions. Based on the organizational and operational footprint of the Loan Parties, the following jurisdictions have been identified for UCC-1 filings:
• Delaware Secretary of State (organizational state of Nexford, Holdings, and certain subsidiaries)
• Illinois Secretary of State (principal place of business of Nexford and location of certain subsidiaries)
• Pennsylvania Department of State (organizational or operational state of certain subsidiaries)
• South Carolina Secretary of State (location of Greenville manufacturing facility)
• Texas Secretary of State (location of Houston manufacturing facility)
• Michigan Department of State (organizational or operational state of certain subsidiaries)
2. Collateral Appraisals. Collateral appraisals of the real property to be subject to mortgages have been completed by Greystone Valuation Services, Inc. (Daniel Pritchard, MAI), located at 1700 Market Street, Philadelphia, Pennsylvania 19103. The total appraised value of the four mortgaged properties is $193,000,000. The individual appraisals are as follows:
3. Post-Closing Mortgage Deliverables. The Commitment Letter permits the delivery of executed mortgages, title insurance, and related mortgage recordings as post-closing deliverables, with a deadline of thirty (30) days following the closing date. Based on the March 28, 2025 target closing date, the mortgage post-closing deadline would be April 27, 2025 (or, as the Commitment Letter specifies April 30, 2025, which may reflect rounding to the end of the calendar month or a slight adjustment). This post-closing carve-out is favorable to the Borrower, as it permits the closing to proceed without requiring the completion of all mortgage recordings and title insurance issuance, which can be time-consuming and subject to local jurisdictional delays.
4. Title Insurance. Title insurance for the mortgaged properties is to be provided by Landmark Title Assurance Company. Title commitments should be ordered and reviewed promptly to identify any title exceptions or encumbrances that may require resolution prior to closing or during the post-closing period.
5. Phase I Environmental Site Assessments. Phase I Environmental Site Assessments for the mortgaged properties have been completed by Clearwater Environmental Sciences, Inc. (Dr. Nathan Foley, project manager). We understand that the Phase I reports have been delivered to Crescent Harbor's environmental counsel for review. Any recognized environmental conditions identified in the Phase I reports should be flagged for discussion with the Administrative Agent.
F. Payoff / Refinancing Conditions
The following conditions relate to the refinancing of the existing credit facilities:
1. Payoff Letter. Delivery of a payoff letter from Atlas Meridian Bank, N.A. (Sandra Vickers, Managing Director, Portfolio Management; 500 Liberty Avenue, Pittsburgh, Pennsylvania 15222) confirming the payoff amount of $879,375,000 for the existing first lien term loan. The payoff amount includes the outstanding principal balance of $875,000,000 plus approximately $4,375,000 in accrued and unpaid interest through the anticipated closing date. The payoff letter must include (i) wire transfer instructions for the payment of the payoff amount, (ii) authorization for the filing of UCC-3 termination statements and the release of all liens securing the existing credit facilities, and (iii) the existing lender's agreement to deliver executed lien release documentation upon receipt of the payoff amount.
2. Revolver Termination. Commitment by Nexford to terminate the existing $190,000,000 revolving credit facility with Atlas Meridian Bank, N.A. The revolving facility is currently undrawn ($0 outstanding), and accordingly no payoff of revolving loans is required. The termination of the revolving commitment will be effected concurrently with the closing of the Term Loan B.
3. Lien Releases and UCC-3 Terminations. Atlas Meridian is required to provide executed lien release documentation and authorization for the filing of UCC-3 termination statements with respect to all UCC-1 financing statements filed in connection with the existing credit facilities. These documents should be held in escrow and filed promptly upon closing and receipt of the payoff amount.
4. Existing Credit Agreement. The existing credit facilities are governed by that certain Credit Agreement dated as of June 14, 2019, by and among Nexford Industrial Holdings Inc., as borrower, Atlas Meridian Bank, N.A., as administrative agent, and the lenders party thereto, as amended by:
• First Amendment, dated March 20, 2020;
• Second Amendment, dated November 8, 2021;
• Third Amendment, dated April 15, 2023; and
• Fourth Amendment, dated September 12, 2024 (which, among other things, waived the prepayment premium otherwise applicable to the refinancing of the term loan).
The Fourth Amendment's waiver of the prepayment premium is an important point and should be confirmed as remaining in effect as of the closing date.
G. Regulatory / Compliance Conditions
The following regulatory and compliance conditions must be satisfied at or prior to closing:
1. KYC Due Diligence. Completion of Know Your Customer due diligence on all Loan Parties. This includes the collection and verification of beneficial ownership information, identification documents, organizational documents, and other information required by Crescent Harbor's compliance department.
2. USA PATRIOT Act / BSA / FCPA. Compliance with the USA PATRIOT Act, the Foreign Corrupt Practices Act, and the Bank Secrecy Act. The Borrower must deliver certifications regarding its compliance with these laws and regulations.
3. OFAC / Sanctions. Confirmation that no Loan Party, director, officer, employee, or (to the knowledge of the Loan Parties) agent is a Sanctioned Person, and that no proceeds of the Term Loan B will be used in violation of sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury. These representations are standard and will be brought down at closing.
4. Borrower's Compliance Certificate. The Borrower is required to deliver a certificate at closing certifying the use of proceeds of the Term Loan B and compliance with applicable sanctions, anti-corruption, and anti-money laundering requirements.
H. Rating Agency Conditions
The Commitment Letter requires receipt of credit ratings from at least one nationally recognized rating agency prior to closing. The current status of the ratings process is as follows:
Keystone Ratings Group, Inc.: Corporate family rating of B1; facility rating of B1 for the Term Loan B.
Sentinel Credit Analytics, LLC: Corporate credit rating of B+; facility rating of BB- for the Term Loan B.
The rating agency presentations were made on February 19, 2025, and the ratings are expected to be formally assigned on February 26, 2025. We note that the BB- facility rating from Sentinel Credit Analytics for the Term Loan B is one notch above the corporate credit rating, reflecting the secured and senior position of the facility in the capital structure. The one-notch uplift from B1 to B1 at Keystone is consistent with a first lien secured position where the recovery rate analysis supports a rating at the corporate family level.
I. Insurance Conditions
The Commitment Letter requires delivery of evidence of insurance programs satisfactory to the Administrative Agent. The relevant insurance contacts and carriers are as follows:
Insurance Broker: Vantage Risk Advisors, LLC (Rachel Sorensen), 350 North Clark Street, Chicago, Illinois 60654.
Property & Casualty Carrier: Continental Shield Underwriters, Inc.
D&O Carrier: Meridian Specialty Insurance Co.
The insurance certificates and evidence of coverage should be coordinated with Vantage Risk Advisors and delivered to Crescent Harbor's insurance review team sufficiently in advance of closing to permit review and approval. The Administrative Agent is required to be named as an additional insured and loss payee (as applicable) under the relevant insurance policies.
J. Pro Forma Compliance Certificate
The Borrower is required to deliver a certificate at closing demonstrating pro forma compliance with the financial covenants under the Credit Agreement after giving effect to the transactions. The pro forma compliance statistics are as follows:
• Pro forma first lien net leverage: 3.38x (well below the 5.00x springing covenant threshold)
• Pro forma total net leverage: 4.03x
Given the significant cushion between the pro forma leverage levels and the financial covenant threshold, this condition is not expected to present any difficulty. However, the compliance certificate must be based on the final pro forma balance sheet and the audited financial statements as of December 31, 2024.
K. Other Conditions
The Commitment Letter includes the following additional conditions precedent to closing, which are standard for leveraged finance transactions:
1. No Material Adverse Effect. No event, circumstance, or condition shall have occurred since December 31, 2024, that has had, or could reasonably be expected to have, a Material Adverse Effect on the business, assets, financial condition, or results of operations of the Borrower and its subsidiaries, taken as a whole.
2. No Material Litigation. No litigation, proceedings, investigations, or similar actions shall exist that could reasonably be expected to have a Material Adverse Effect.
3. Representations and Warranties. All representations and warranties of the Borrower and the other Loan Parties contained in the Credit Agreement and the other loan documents shall be true and correct in all material respects (or, in the case of representations and warranties qualified by materiality, in all respects) as of the closing date.
4. No Default or Event of Default. No Default or Event of Default under the Credit Agreement shall have occurred and be continuing on the closing date, or would result from the making of the Term Loan B.
L. Assessment of Conditions / Potential Issues
Based on our review, we note the following observations and potential issues with respect to the conditions precedent:
1. Limited Conditionality. The conditions precedent are generally consistent with a "certain funds" or "limited conditionality" framework, but the Commitment Letter does not provide full certain funds protection to the Borrower. The conditionality provisions are limited to the accuracy of specified representations, the absence of a Material Adverse Effect, the absence of a default, and the delivery of closing documentation. This is typical for a refinancing and dividend recapitalization transaction (as opposed to an acquisition financing, where more robust certain funds protections are customary). However, we recommend reviewing the limited conditionality provisions carefully in the definitive documentation to ensure that the conditions cannot be expanded through the exercise of structural flex by Crescent Harbor.
2. Post-Closing Carve-Out for Mortgages. The 30-day post-closing period for delivery of executed mortgages, title insurance, and related recordings (with a deadline of April 30, 2025) is favorable to the Borrower and is consistent with the February 10 markup of the term sheet. Some arranger precedents specify only 15 days for post-closing mortgage deliverables, so the 30-day period is a positive outcome for the Borrower. We recommend confirming this timeline with W&G in the definitive documentation.
3. KYC Timing. The KYC condition should be satisfied well in advance of closing. We recommend that Nexford's treasury and legal teams coordinate early delivery of all compliance documentation to Crescent Harbor's KYC and compliance departments to avoid any delays.
4. Audited Financial Statements. The condition requiring delivery of FY2024 audited financial statements (for the fiscal year ended December 31, 2024) is a critical path item. Given that the audit engagement partner is Helen Yamamoto of Ashworth & Kendrick LLP, we recommend that Nexford's CFO, Michelle Kaplan, and VP of Treasury, Priya Mehta, confirm with Ashworth & Kendrick that the audit will be completed and the audited financial statements will be available well in advance of the March 28, 2025 target closing date. Many large audit firms do not complete calendar year-end audits until late February or March, and any delay could jeopardize the closing timeline.
V. Syndication Provisions
A. Syndication Rights and Process
The Commitment Letter grants Crescent Harbor sole discretion over all aspects of the syndication of the Term Loan B, including the selection of syndicate members, the allocation of commitments among syndicate members, and the assignment of titles and roles within the syndicate. This sole discretion is consistent with Crescent Harbor's role as sole lead left arranger and bookrunner and is standard for commitment letters of this type.
The Commitment Letter contemplates that Crescent Harbor will invite additional arrangers to join the syndicate. The following institutions are anticipated to join as joint lead arrangers prior to the bank meeting scheduled for February 27, 2025:
• Ironwood Capital Markets, LLC — anticipated commitment of $200,000,000, expected to join by March 7, 2025.
• Northvane Securities, Inc. — anticipated commitment of $150,000,000, expected to join by March 7, 2025.
In addition to the joint lead arrangers, the target syndicate includes the following institutional investors and CLO vehicles:
The remaining $175,000,000 would be retained by Crescent Harbor as its target final hold. The target completion date for general syndication is March 21, 2025, which would be seven days prior to the March 28, 2025 target closing date.
The Commitment Letter references the following anticipated identifiers for the facility: CUSIP 65432X AA1; LoanX ID LX-234567. These identifiers will be used in the syndication process to track allocations and facilitate trading of the Term Loan B in the secondary market following closing.
B. Borrower's Syndication Cooperation Obligations
The Commitment Letter requires Nexford to cooperate fully with Crescent Harbor's syndication efforts. Specifically, the Borrower is required to:
1. Management Availability. Make senior management of Nexford available for bank meetings, lender presentations, and one-on-one meetings with prospective syndicate members. A bank meeting and lender presentation has been scheduled for February 27, 2025.
2. Financial Information. Provide financial information, including LTM financial data as of December 31, 2024, projections, and other information reasonably requested by Crescent Harbor in connection with the syndication process.
3. Rating Agency Presentations. Participate in presentations to the rating agencies. The rating agency presentations to Keystone Ratings Group, Inc. and Sentinel Credit Analytics, LLC were completed on February 19, 2025.
4. Confidential Information Memorandum. Provide information for and cooperate in the preparation of a confidential information memorandum (the "CIM") to be distributed to prospective syndicate members. The CIM is being prepared by Stonebridge Advisory Group, LLC (Andrew Castellano, Managing Director; 277 Park Avenue, New York, New York 10172) in coordination with Crescent Harbor.
5. Accuracy of Information. The Borrower is responsible for the accuracy of all information provided to Crescent Harbor and prospective syndicate members in connection with the syndication. The Borrower and the Sponsor are required to execute customary 10b-5 representation letters regarding the accuracy and completeness of the information contained in the CIM and other lender presentation materials.
These syndication cooperation obligations require significant management time and attention and should be carefully coordinated by the Borrower's management team. As noted in Section XIV below, we recommend confirming Nexford's board and management comfort with these commitments.
C. Successful Syndication Condition
Critically, the Commitment Letter does not condition the closing of the Term Loan B on successful syndication of the facility. Crescent Harbor bears the syndication risk, meaning that if Crescent Harbor is unable to syndicate all or any portion of the facility to other lenders prior to closing, Crescent Harbor is nevertheless obligated to fund the full $1,400,000,000 on the closing date (subject only to the satisfaction of the conditions precedent set forth in Exhibit B). This backstop commitment is one of the most important borrower protections in the Commitment Letter.
However, while closing is not conditioned on successful syndication, the market flex provisions contained in the fee letter (summarized in Section VI below) give Crescent Harbor pricing and structural flexibility if syndication proves difficult. The exercise of market flex could result in increased borrowing costs for Nexford. Accordingly, while Nexford has certainty that the facility will be funded at closing, the final all-in cost of the facility may be subject to adjustment if market conditions deteriorate or the syndication process encounters difficulties.
VI. Market Flex Provisions
The market flex provisions are primarily contained in the separate fee letter and are subject to enhanced confidentiality. This section summarizes the market flex provisions as referenced in the Commitment Letter itself. A detailed analysis of the market flex provisions will be provided in the Fee Letter Review Memorandum dated February 17, 2025.
A. Pricing Flex
Crescent Harbor has the right to adjust the interest rate margin (currently Term SOFR + 400 basis points), the OID (currently 50 basis points), and the upfront fee offered to participating lenders (currently 100 basis points) in order to facilitate successful syndication of the Term Loan B. The specific pricing flex caps and parameters (i.e., the maximum amount by which Crescent Harbor may adjust each of these pricing components) are set forth in the fee letter and are subject to enhanced confidentiality. Any pricing flex exercised by Crescent Harbor will result in increased borrowing costs for Nexford, either through a wider spread, a larger OID (lower issue price), or higher upfront fees that are effectively borne by the Borrower.
B. Structural Flex
In addition to pricing flex, Crescent Harbor has limited structural flex rights, which permit Crescent Harbor to make certain adjustments to the non-pricing terms of the Term Loan B to facilitate syndication. The structural flex rights include, but are not limited to, the right to adjust:
• The amortization schedule (within specified limits);
• Financial covenant levels (within specified limits); and
• Collateral and guarantee requirements (additions only; Crescent Harbor may not reduce the collateral or guarantee package through the exercise of structural flex).
Any structural flex exercised by Crescent Harbor must be consistent with the overall transaction framework set forth in the Term Sheet and may not fundamentally alter the nature or structure of the facility.
C. Reverse Flex
The Commitment Letter also includes reverse flex provisions, which allow for the tightening of the economics of the Term Loan B if the syndication is oversubscribed. If lender demand for the facility exceeds the available commitment amount, the reverse flex provisions permit Crescent Harbor and the Borrower to agree on a reduction in the interest rate spread, OID, or upfront fees. Reverse flex would benefit Nexford by reducing the overall cost of the facility and should be actively pursued if market conditions are favorable.
D. Sunset. The market flex provisions (both pricing flex and structural flex) sunset upon the earlier of (i) the successful completion of the syndication and (ii) the closing of the Term Loan B. After sunset, Crescent Harbor may no longer exercise the flex provisions, and the final terms of the facility are locked in. We recommend confirming the precise mechanics of the flex sunset in the fee letter to ensure that the Borrower's interests are adequately protected.
E. Assessment. The market flex provisions described in the Commitment Letter are within market norms for a $1,400,000,000 Term Loan B facility in a sponsor-backed refinancing and dividend recapitalization transaction. The existence of pricing flex is standard, and the inclusion of reverse flex is a positive feature for the Borrower. However, we make the following recommendations:
1. The pricing flex caps set forth in the fee letter should be reviewed carefully to quantify the maximum cost exposure to Nexford if Crescent Harbor exercises full pricing flex.
2. The structural flex parameters should be reviewed to ensure that Crescent Harbor's structural flex rights are appropriately limited and cannot be used to make material adverse changes to the covenant package or other borrower-favorable terms.