Bernard,
Thank you for the productive call this morning and for your team's flexibility in working through the remaining open items. I am writing to memorialize the terms that we agreed upon today regarding the springing fixed charge coverage ratio covenant and the cash dominion trigger mechanics in the Credit Agreement for the $300,000,000 Senior Secured Asset-Based Revolving Credit Facility among Cascade Retail Holdings Inc. and Cascade Retail Operating Company LLC, as Borrowers, the Guarantors party thereto, the Lenders, and Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent. I wanted to circulate this written confirmation to all parties so that we have a clear record of the agreed terms before the execution version is prepared.
The agreed terms are as follows:
**I. Springing Fixed Charge Coverage Ratio Covenant**
(a) *Minimum Ratio.* 1.10 to 1.00.
(b) *Nature.* Springing — the FCCR covenant is tested only when Availability falls below the FCCR Trigger Threshold.
(c) *FCCR Trigger Threshold.* The greater of (i) 10% of the lesser of (x) the Aggregate Commitments ($300,000,000) and (y) the Borrowing Base and (ii) $25,000,000. At closing, this results in a trigger threshold of $30,000,000 (i.e., 10% × $300,000,000 = $30,000,000, which exceeds the $25,000,000 floor).
(d) *Testing Period.* Trailing four fiscal quarters (TTM basis), measured as of the last day of the most recently ended fiscal quarter for which financial statements have been delivered.
(e) *FCCR Definition.* The ratio of (i) Consolidated EBITDA minus unfinanced capital expenditures minus cash taxes paid to (ii) Fixed Charges. "Fixed Charges" is defined as the sum of scheduled funded debt payments, cash interest expense, restricted payments, and capital lease obligations, in each case for the applicable measurement period.
As a reference point, based on FY2022 audited financials (Consolidated EBITDA of approximately $148.5 million and Fixed Charges of approximately $87.2 million), the Borrowers' current FCCR is approximately 1.70:1.00, which provides substantial headroom above the 1.10:1.00 minimum. As you know, this was a key point of negotiation — our clients had originally proposed a lower trigger threshold (and, in the alternative, elimination of the dollar floor), while the Lender group sought a tighter trigger at 12.5% with a $30,000,000 floor. The agreed formulation at 10% with a $25,000,000 floor reflects what I believe is a reasonable middle ground, and both sides should be comfortable with the result.
**II. Cash Dominion Trigger**
(a) *Cash Dominion Trigger Threshold.* 12.5% of the lesser of (x) the Aggregate Commitments and (y) the Borrowing Base. At closing, this results in a trigger threshold of $37,500,000 (i.e., 12.5% × $300,000,000).
(b) *Activation.* Cash dominion — i.e., the Administrative Agent's right to exercise exclusive control over the Borrowers' and Guarantors' deposit accounts pursuant to the applicable Deposit Account Control Agreements and to sweep collections to the concentration account — is activated when (i) Availability falls below $37,500,000 or (ii) an Event of Default has occurred and is continuing.
(c) *Deposit Account Control Agreements.* This is consistent with the DACAs currently being negotiated with (i) Meridian Trust Company, N.A. (Cascade Retail Holdings' operating bank), (ii) Crescent Harbor Bank, N.A. (two accounts — CROC collections account and CRH concentration account), and (iii) Northgate Capital Bank (CDC collections account).
(d) *Deactivation.* Cash dominion ceases when Availability has been at or above the Cash Dominion Trigger Threshold for 30 consecutive days and no Event of Default is then continuing.
**III. Previously Resolved Items — Confirmation**
For completeness, I also want to briefly confirm the following terms that were resolved in prior rounds of comments and are reflected in the current draft:
- *Restricted Payment Availability Threshold:* 15% of the lesser of Aggregate Commitments and the Borrowing Base (i.e., $45,000,000 at closing). Where Availability is between 15% and 20% of such amount, restricted payments are subject to a pro forma FCCR requirement of 1.15:1.00.
- *Interest Rate and Fees:* Adjusted Term SOFR + 300 basis points; SOFR credit spread adjustments of 10 bps for 1-month interest periods and 15 bps for 3-month interest periods; unused line fee of 37.5 bps. The fee letter terms are final.
- *Borrowing Base Mechanics:* 85% advance rate on eligible receivables; 65% advance rate on eligible inventory (net orderly liquidation value); customary availability reserves at the discretion of the Administrative Agent.
- *Reporting Requirements:* Monthly borrowing base certificates; weekly BBCs when Availability is below $45,000,000.
**IV. Next Steps — Preparation of Execution Version**
Bernard, we would ask that WGH incorporate the agreed terms set forth above into the Credit Agreement and prepare a clean execution version of the Credit Agreement and related Loan Documents for circulation to all parties. We are hopeful that the execution version can be circulated no later than Friday, April 28. On our end, Calderwood & Harkness will simultaneously finalize the ancillary borrower-side deliverables (secretary's certificates, officer's certificate, solvency certificate, perfection certificate, and related closing documents) and will coordinate with Derek and his team on remaining closing deliverables.
I would also suggest that Marcus Leung on our side and Megan Proctor on yours coordinate directly on the mechanics of turning the document to ensure an efficient process.
Thank you again to you and the Crescent Harbor team — Thomas and Julianne in particular — for the constructive and collaborative approach throughout these negotiations. I am confident that we are well on track for a signing by early May, with closing and initial funding targeted for mid-May.
Please do not hesitate to reach out if you have any questions or if any of the foregoing does not align with your understanding of today's discussion. Have a good weekend.
Best regards,
**Claudia Merritt** Partner, Banking & Finance Calderwood & Harkness LLP 599 Lexington Avenue, 42nd Floor New York, NY 10022 T: (212) 554-7200
Matter Ref: Cascade Retail Holdings Inc. — $300M ABL Credit Facility (Matter No. 1038-00002)
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