PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
TO: Claudia Merritt, Responsible Partner, Banking & Finance
FROM: Marcus Leung, Lead Associate, Banking & Finance
DATE: February 25, 2025
RE: Analysis of Whitfield & Gage LLP First Draft Credit Agreement — Nexford Industrial Holdings Inc. $1,400,000,000 Senior Secured Term Loan B
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 provide a comprehensive analysis of the first draft of the credit agreement (the "W&G Draft") circulated by Whitfield & Gage LLP ("W&G") on behalf of Crescent Harbor Bank, N.A. (the "Administrative Agent") on the evening of February 24, 2025 at 7:43 p.m. EST. The W&G Draft was prepared under the direction of Margaret Ashby, lead partner, and Jonathan Ferris, working associate, and bears the file name "NIH Credit Agreement — Draft 1" per the agreed naming convention for this transaction.
Overall Assessment. The W&G Draft generally reflects the economic terms set forth in the commitment letter executed on February 14, 2025, by and among Crescent Harbor Bank, N.A., Nexford Industrial Holdings Inc. (the "Borrower" or "Nexford"), and Granite Peak NIH Holdings, LLC ("Holdings"), as well as the revised term sheet agreed upon and delivered by Calderwood & Harkness LLP ("C&H") to W&G on February 10, 2025 (the "Term Sheet"). However, the W&G Draft contains a number of material departures from the agreed Term Sheet and deviations from borrower-favorable market practice that require negotiation before the Borrower should agree to execute the credit agreement in substantially its current form.
Scope of Issues Identified. This memorandum identifies approximately twenty-seven (27) substantive issues across the full spectrum of the W&G Draft's provisions, which I have categorized as follows:
(a) Departures from Term Sheet — Provisions in the W&G Draft that are inconsistent with, or less favorable to the Borrower than, the terms expressly agreed upon in the commitment letter and Term Sheet. These are the most significant issues, as we have a strong basis for requiring conformity with the agreed terms.
(b) Departures from Market Practice — Provisions in the W&G Draft that, while not expressly addressed in the Term Sheet, deviate from customary borrower-favorable practice in recent sponsor-backed Term Loan B transactions for companies of comparable size, leverage, and sector profile.
(c) Provisions Requiring Borrower Input or Clarification — Provisions that are not necessarily objectionable but require factual confirmation or commercial input from the Borrower's management team, the Sponsor, or third parties.
Recommended Approach. I recommend that we prepare a comprehensive mark-up of the W&G Draft for return to W&G, with a target delivery date of March 3, 2025. Before the mark-up is finalized, Claudia Merritt should review and approve the firm's recommended positions on the fourteen (14) highest-priority items, which I have flagged as "Priority 1" throughout this memorandum and summarized in Section XVI below. I am available to discuss these items at your convenience, and I have proposed a call for February 26, 2025, as set forth in Section XVII.
Coordination with Sponsor's Counsel. I note that Patricia Voss at Kellner Brandt & Associates LLP ("KB&A"), acting as counsel to Granite Peak Capital Partners, LP (the "Sponsor"), is conducting a parallel review of the W&G Draft with particular focus on sponsor-related provisions, including the Permitted Holder definition, equity cure rights, restricted payment flexibility, and the management fee carve-out. We should coordinate closely with Ms. Voss to ensure alignment of our respective mark-ups and avoid any inconsistencies in our approach. I will reach out to Ms. Voss to schedule a coordination call prior to finalizing our mark-up.
II. BACKGROUND AND TRANSACTION OVERVIEW
Set forth below is a summary of the key transaction parties, terms, and structure relevant to the analysis in this memorandum.
Borrower. Nexford Industrial Holdings Inc., a Delaware corporation headquartered at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford operates as a diversified industrials and specialty manufacturing platform across multiple end markets, including aerospace components, industrial coatings, precision tooling, and engineered systems. For the twelve-month period ending December 31, 2024 ("LTM"), Nexford reported revenue of approximately $2.1 billion and Adjusted EBITDA of approximately $385,000,000, based on management-reported figures provided during the due diligence process.
Sponsor. Granite Peak Capital Partners, LP (the "Sponsor"), a middle-market private equity firm headquartered in New York, New York, holds its investment in Nexford through Granite Peak NIH Holdings, LLC ("Holdings"), a Delaware limited liability company that serves as the direct parent and holding company of the Borrower. The Sponsor acquired Nexford in January 2019 for an enterprise value of approximately $1.65 billion, primarily through Granite Peak Capital Fund IV, LP, with additional co-investment capital provided through GP Fund IV Co-Invest, LP. The Sponsor's deal team is led by Ryan Ostrowski (Partner) and includes Megan Chu (Principal) and Alex Delgado (Vice President).
Transaction. The Borrower is seeking a $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B" or the "Facility"). The proceeds of the Term Loan B will be applied as follows:
(a) Approximately $879,375,000 to refinance the Borrower's existing first lien credit facilities, consisting of an $875,000,000 first lien term loan (with approximately $4,375,000 of accrued and unpaid interest) and a $190,000,000 revolving credit facility (currently undrawn; the revolving commitment will be terminated upon closing). The existing administrative agent and collateral agent under these facilities is Atlas Meridian Bank, N.A. (Sandra Vickers, Managing Director, Loan Operations). The existing credit agreement was dated June 14, 2019, as amended through the Fourth Amendment dated September 12, 2024.
(b) Approximately $335,000,000 to fund a dividend distribution to Holdings and, indirectly, to the Sponsor.
(c) Approximately $38,625,000 to pay transaction fees, costs, and expenses, including arrangement fees payable to Crescent Harbor Bank, N.A. and the anticipated Joint Lead Arrangers, legal fees, and other closing costs.
(d) Approximately $147,000,000 to be contributed as cash to the Borrower's balance sheet for general corporate purposes.
Administrative Agent / Collateral Agent / Lead Left Arranger. Crescent Harbor Bank, N.A., located at 320 Federal Street, Boston, Massachusetts 02110. The primary contacts at Crescent Harbor are Elaine Prescott (Managing Director, Leveraged Finance), who serves as the relationship manager and lead structurer for the transaction, and Thomas Nakamura (Director, Loan Syndication), who will oversee the syndication process.
Agent's Counsel. Whitfield & Gage LLP, located at 51 West 52nd Street, New York, New York 10019. The engagement is led by Margaret Ashby, a partner in the Banking & Finance group, with Jonathan Ferris serving as the working associate.
Borrower's Counsel. Calderwood & Harkness LLP, located at 425 Lexington Avenue, New York, New York 10017. This memorandum reflects the analysis of C&H's Banking & Finance group, with additional cross-referencing to memoranda prepared by C&H's Litigation, Regulatory Compliance, and Environmental groups, as noted herein.
Joint Lead Arrangers (Anticipated). Ironwood Capital Markets, LLC and Northvane Securities, Inc. are expected to join the syndicate as Joint Lead Arrangers and Joint Bookrunners. As of the date of the W&G Draft, neither institution has been formally joined to the transaction; their formal joinder occurred on March 7, 2025, subsequent to the preparation of this memorandum.
Ratings. Rating agency presentations were conducted on February 19, 2025, to both Keystone Ratings Group, Inc. and Sentinel Credit Analytics, LLC. On February 26, 2025 — one day after the date of this memorandum — Keystone assigned a corporate family rating of B1 and Sentinel assigned a corporate credit rating of B+, in each case reflecting the pro forma capital structure.
Governing Law. New York.
Maturity. Seven (7) years from the closing date. The targeted closing date is March 28, 2025, which would result in a maturity date of March 28, 2032.
Existing Senior Unsecured Notes. The Borrower has outstanding $250,000,000 aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Senior Unsecured Notes"), issued pursuant to an Indenture dated November 8, 2021, with Pinnacle Trust Company serving as trustee. The Senior Unsecured Notes are not being refinanced in connection with this transaction and will remain outstanding. The credit agreement will need to include appropriate intercreditor provisions, and a separate First Lien/Unsecured Intercreditor Agreement is anticipated to be negotiated with Pinnacle Trust Company.
III. METHODOLOGY AND APPROACH
In preparing this memorandum, I have reviewed the W&G Draft against the following four principal benchmarks:
(a) The Executed Commitment Letter dated February 14, 2025, among Crescent Harbor Bank, N.A., Nexford Industrial Holdings Inc., and Granite Peak NIH Holdings, LLC, which sets forth certain binding commitments and the framework of terms for the Facility.
(b) The Agreed Revised Term Sheet dated February 10, 2025, which was the product of negotiation between C&H (on behalf of the Borrower) and W&G (on behalf of the Administrative Agent) and was delivered to W&G in C&H-marked form reflecting the final agreed economic and structural terms.
(c) Current Market Practice for sponsor-backed Term Loan B transactions, with particular reference to recent comparable transactions in the diversified industrials and specialty manufacturing sectors. The specific precedent transactions used for benchmarking purposes are set forth in Appendix C to this memorandum.
(d) The Existing Credit Agreement dated June 14, 2019, as amended through the Fourth Amendment dated September 12, 2024 (collectively, the "Existing Credit Agreement"), which provides useful context regarding the Borrower's historical credit profile and the covenant framework under which the Borrower has been operating.
Issue Categorization. Each issue identified in this memorandum is categorized by the relevant section of the credit agreement (i.e., definitions, conditions precedent, representations and warranties, financial covenant, negative covenants, mandatory prepayments, voluntary prepayments, events of default, security/guarantee, interest/fees, administrative/miscellaneous). Within each category, issues are assigned a priority level as follows:
• Priority 1: Material issue requiring partner-level decision. These items involve departures from the Term Sheet, provisions that meaningfully restrict the Borrower's operational or financial flexibility, or points where the negotiating position requires senior-level approval. There are fourteen (14) Priority 1 items.
• Priority 2: Significant issue where associate-level resolution is likely sufficient. These items involve departures from market practice, technical issues that warrant negotiation but are not expected to be contentious, or provisions requiring factual clarification.
• Priority 3: Minor or clean-up issue. These items involve provisions that are generally consistent with expectations but require minor drafting adjustments, conforming changes, or typographical corrections.
Issue Presentation Format. For each issue, this memorandum presents: (i) a description of the W&G Draft provision; (ii) a comparison to the Term Sheet and/or current market practice; (iii) the recommended borrower position; and (iv) the assigned priority level. A comprehensive tabular summary of all issues is provided in Appendix A.
IV. DEFINITIONS (ARTICLE I) — DETAILED ANALYSIS
Article I of the W&G Draft contains the definitional provisions that form the foundation of the credit agreement. The definitions are critical because they establish the building blocks for the financial covenants, negative covenants, mandatory prepayment mechanics, and other operative provisions of the agreement. Set forth below is a detailed analysis of the most significant definitional issues.
A. "Adjusted EBITDA" Definition
W&G Draft Provision. The W&G Draft defines "Adjusted EBITDA" as Consolidated Net Income of the Borrower and its Restricted Subsidiaries, adjusted to add back (without duplication) the following items to the extent deducted in computing Consolidated Net Income: (i) provision for income taxes; (ii) interest expense, amortization or write-off of debt discount and debt issuance costs, and charges related to hedging obligations; (iii) depreciation and amortization; (iv) non-cash charges and losses (including non-cash stock-based compensation); and (v) certain other cash charges and expenses, subject to customary add-back categories. Critically, the W&G Draft includes a cap on add-backs at 15% of EBITDA before add-backs (i.e., 15% of Consolidated Net Income as adjusted by clauses (i) through (iii) above, but before any clause (iv) and (v) adjustments).
Term Sheet / Market Comparison. The Term Sheet did not include any percentage cap on EBITDA add-backs. The parties negotiated the specific add-back categories in the Term Sheet but did not agree to subject those add-backs to a global percentage limitation. In current market practice for recent sponsor-backed Term Loan B transactions in the diversified industrials sector, the trend is strongly toward either (x) no global percentage cap on add-backs or (y) a cap set at 20% to 25% of EBITDA before add-backs. A 15% cap is well below the range observed in comparable recent transactions. See Appendix C (noting that the Harmon Industrial Technologies transaction (December 2024) had no cap, the Marlowe Asset Management Precision Holdings transaction (October 2024) had a 25% cap, and the Dralvecen Manufacturing Group transaction (November 2024) had a 20% cap).
Current Add-Back Profile. Based on the Borrower's financial data for the LTM period ending December 31, 2024, the current EBITDA add-backs are as follows:
Reported EBITDA before add-backs was approximately $357,000,000 for the LTM period. The current add-backs of $28,000,000 represent approximately 7.8% of EBITDA before add-backs, which is well within even a 15% cap. However, the concern is not with the present level of add-backs but with future flexibility. If the Borrower were to undertake additional acquisitions or restructuring initiatives, the 15% cap could become binding and could impair the Borrower's ability to demonstrate covenant compliance. Given that the Sponsor's business plan for Nexford contemplates a continued acquisition strategy, including a potential platform acquisition in the $150,000,000–$250,000,000 enterprise value range within the next 18 months, future add-backs could easily approach or exceed a 15% threshold.
Recommended Position. We recommend that the percentage cap be deleted entirely, as the parties did not agree to any such cap in the Term Sheet. If the Administrative Agent insists on retaining some form of cap as a matter of credit policy, we should negotiate to raise the cap to no less than 25% of EBITDA before add-backs, which is consistent with the upper end of market practice. In addition, regardless of the cap issue, we should ensure that all four categories of current add-backs — acquisition-related costs, non-recurring restructuring charges, sponsor management fees, and integration costs — are specifically enumerated in the definition as standalone add-back categories, thereby reducing the risk of interpretive disputes.
Priority: Priority 1.
B. "Consolidated Net Income" Definition
W&G Draft Provision. The W&G Draft defines "Consolidated Net Income" in a manner that is generally consistent with market practice, starting with net income determined in accordance with GAAP, subject to certain exclusions.
Issues for Review. The following aspects of the definition require confirmation:
(i) Extraordinary and non-recurring items. Confirm that extraordinary items and non-recurring gains and losses are properly excluded from Consolidated Net Income, as the inclusion of such items could introduce volatility into the builder basket calculation and other provisions keyed to cumulative Consolidated Net Income.
(ii) Non-cash compensation charges. Confirm that non-cash stock-based compensation charges are excluded, including any charges attributable to the management equity plan maintained by Holdings for senior management of the Borrower and its subsidiaries.
(iii) Unrealized gains and losses on hedging. Confirm that unrealized gains and losses on hedging instruments that are not settled in cash are excluded, consistent with the Borrower's hedging program under its interest rate cap agreement with Redstone National Bank.
(iv) Minority interest exclusions. Confirm the proper treatment of income attributable to non-controlling interests (i.e., minority interests) in any joint ventures or partially owned subsidiaries.
Relevance to Builder Basket. The Consolidated Net Income definition is of particular significance because it directly feeds into the "builder basket" calculation under the Restricted Payments covenant. Under the Term Sheet, the builder basket equals 50% of cumulative Consolidated Net Income from the first full fiscal quarter after closing (Q1 2025) plus a $50,000,000 starter amount. Any over-inclusiveness in the Consolidated Net Income definition (e.g., inclusion of non-cash or non-recurring items) would inflate the builder basket, while any under-inclusiveness would restrict the Borrower's ability to make distributions.
Recommended Position. Confirm that the definition properly excludes the items described above. We will propose specific drafting adjustments in the mark-up if the current language is ambiguous or incomplete.
Priority: Priority 2.
C. "First Lien Net Leverage Ratio" Definition
W&G Draft Provision. The W&G Draft defines the "First Lien Net Leverage Ratio" as the ratio of (x) Consolidated First Lien Secured Indebtedness as of the date of determination to (y) LTM Adjusted EBITDA for the most recently ended four fiscal quarter period. The numerator includes all indebtedness secured by a first-priority lien on the Collateral or other assets of the Borrower and the Subsidiary Guarantors. Cash netting is permitted, but the W&G Draft limits nettable cash to unrestricted cash and cash equivalents on the balance sheet, capped at $150,000,000.
Issue 1 — Cash Netting Cap. The Term Sheet did not contain any cap on the amount of cash that could be netted against first lien secured indebtedness in calculating the First Lien Net Leverage Ratio. The imposition of a $150,000,000 cash netting cap is a material departure from the agreed Term Sheet. While the practical impact at closing is limited — pro forma unrestricted cash is expected to be approximately $100,000,000, which is below the $150,000,000 cap — the cap becomes relevant if the Borrower accumulates additional cash over time. For example, if the Borrower were to hold $200,000,000 of unrestricted cash, only $150,000,000 could be netted, resulting in a higher calculated leverage ratio and potentially restricting the Borrower's ability to satisfy leverage-based tests (including the 4.50x incremental facility incurrence test and the 5.00x springing financial covenant).
Pro Forma Calculation at Closing:
The 3.38x pro forma ratio is well below the 5.00x springing financial covenant level. However, the margin between actual leverage and the various ratio-based tests in the credit agreement is critical for the Borrower's ongoing financial flexibility, and an artificial cap on cash netting diminishes that margin without justification.
Issue 2 — Pro Forma Adjustments. The definition should explicitly provide for pro forma adjustments to give effect to acquisitions and dispositions consummated during the LTM period as if they had occurred on the first day of such period. This is the standard "LTM pro forma" calculation methodology. The W&G Draft's language on pro forma adjustments is ambiguous and should be clarified.
Recommended Position. We recommend removing the $150,000,000 cash netting cap entirely, as it was not agreed in the Term Sheet and is inconsistent with the uncapped netting provision contemplated by the parties. In addition, we should confirm that the pro forma calculation methodology for acquisitions and dispositions is clearly and comprehensively set forth.
Priority: Priority 1.
D. "Total Net Leverage Ratio" Definition
W&G Draft Provision. The "Total Net Leverage Ratio" is defined as the ratio of (x) total Consolidated Indebtedness minus nettable cash to (y) LTM Adjusted EBITDA. The numerator includes all indebtedness — both secured and unsecured — of the Borrower and the Restricted Subsidiaries. The same $150,000,000 cash netting cap discussed in Section IV.C above applies.
Relevance. The Total Net Leverage Ratio is the primary test for the unlimited restricted payments basket, which requires pro forma compliance at 3.75x (per the Term Sheet; the W&G Draft erroneously uses 3.50x, as discussed in Section VIII.C below).
Pro Forma Calculation at Closing:
The 4.03x pro forma total net leverage ratio is above the 3.75x threshold for the unlimited restricted payments basket, meaning that this basket would not be available to the Borrower at closing. The Borrower would need to de-lever to approximately $1,443,750,000 in total net indebtedness (or, equivalently, increase Adjusted EBITDA to approximately $413,333,333) before the unlimited RP basket becomes available.
Recommended Position. The same cash netting cap issue applies here as described in Section IV.C. The cap must be removed. The discrepancy in the unlimited RP leverage test (3.50x vs. 3.75x) is addressed separately in Section VIII.C.
Priority: Priority 2 (for the definitional issue; the unlimited RP test issue is Priority 1 as discussed in Section VIII.C).
E. "Change of Control" Definition
W&G Draft Provision. The W&G Draft defines a "Change of Control" as occurring upon the occurrence of any of the following events:
(i) The acquisition by any "person" or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than any Permitted Holder of more than 35% of the issued and outstanding voting equity interests of Holdings;
(ii) The Borrower ceasing to be a direct, wholly-owned subsidiary of Holdings; or
(iii) The occurrence of a "Change of Control" (or similar defined term) under the Indenture dated November 8, 2021, governing the Senior Unsecured Notes.
Issue 1 — 35% Threshold. The 35% threshold in clause (i) is consistent with the Term Sheet, and we do not take issue with this level. However, the effectiveness of this threshold depends entirely on the breadth of the "Permitted Holder" definition, which is the subject of a separate issue discussed in Section IV.F below. If the Permitted Holder definition is too narrow, a change of control could be triggered by routine intra-fund transfers, the admission of new limited partners to Granite Peak funds, or the transfer of equity to co-investment vehicles — none of which should constitute a change of control event.
Issue 2 — Cross-Default to Indenture. Clause (iii) introduces a cross-default to the change of control provision in the Senior Unsecured Notes Indenture. While this type of cross-reference is not uncommon, it creates the risk of a "hair-trigger" if the change of control definition in the Indenture is different from — and particularly if it sets a lower threshold than — the definition in the credit agreement. We need to review the Indenture dated November 8, 2021, in detail to confirm the precise definition of "Change of Control" used therein and to determine whether it could be triggered at a lower ownership threshold or under different circumstances than the credit agreement definition. If the Indenture has a more restrictive definition, the cross-reference would effectively import that more restrictive standard into the credit agreement, which was not the intent of the parties.
Recommended Position. We recommend confirming the breadth of the Permitted Holder definition (see Section IV.F) and conducting a detailed review of the Indenture change of control definition. If the Indenture definition is more restrictive, we should propose that clause (iii) be modified to reference only payment defaults and acceleration events under the Indenture, rather than incorporating the Indenture's change of control definition wholesale.
Priority: Priority 1.
F. "Permitted Holders" / "Sponsor" Definition
W&G Draft Provision. The W&G Draft defines "Permitted Holders" to include Granite Peak Capital Fund IV, LP and its general partner, Granite Peak Capital GP IV, LLC. The definition does not expressly include the broader Granite Peak platform.
Issue. The W&G Draft's definition is materially narrower than what is required. The Permitted Holders definition should expressly include, at a minimum, the following entities and individuals:
• Granite Peak Capital Partners, LP (the Sponsor firm)
• Granite Peak Capital Fund IV, LP (the primary fund)
• GP Fund IV Co-Invest, LP (the co-investment vehicle)
• Granite Peak Capital GP IV, LLC (the general partner)
• All other affiliated funds, parallel vehicles, alternative investment vehicles, successor funds (including any future Fund V, Fund VI, etc.), co-investment vehicles, and managed accounts affiliated with or managed by Granite Peak Capital Partners, LP or any of its affiliates
• The principals of Granite Peak Capital Partners, LP, including Derek Calloway (Founding Partner and Managing Member) and Vanessa Liu (Partner), and their respective family members, trusts, and personal investment vehicles
• Any current or future director, officer, or employee of the Borrower or any of its subsidiaries who holds equity interests in Holdings or any Permitted Holder entity pursuant to a management equity plan or similar arrangement
The narrowness of the W&G Draft's definition could result in a change of control being triggered by ordinary-course transfers within the Granite Peak fund complex, such as a transfer of limited partnership interests from Fund IV to a co-investment vehicle or a successor fund, or the admission of a new limited partner that increases the aggregate ownership of non-Fund IV holders. These scenarios are entirely routine in the private equity context and should not constitute a change of control event.
Recommended Position. We recommend significantly broadening the Permitted Holders definition to cover the full range of entities and individuals described above. This issue should be coordinated with Patricia Voss at KB&A, who will have the most detailed knowledge of the Granite Peak fund structure and any anticipated restructuring or transfer activity.
Priority: Priority 1.
G. "SOFR" and Related Rate Definitions
W&G Draft Provision. The W&G Draft references Term SOFR as the benchmark rate, with a credit spread adjustment of 10 basis points for one-month interest periods and 15 basis points for three-month interest periods. The SOFR floor is set at 0.75%.
Consistency with Term Sheet. These parameters are consistent with the Term Sheet. The applicable margin of SOFR + 400 basis points and the 0.75% SOFR floor were expressly agreed upon.
Issue — Benchmark Replacement Language. The W&G Draft includes benchmark replacement and SOFR cessation fallback provisions. We should confirm that these provisions follow the "Hardwired Approach" recommended by the Alternative Reference Rates Committee (ARRC) and adopted by the Loan Syndications and Trading Association (LSTA) in its recommended forms, rather than relying on broad Administrative Agent discretion to select a replacement benchmark. Under the Hardwired Approach, the replacement benchmark waterfall is pre-specified in the credit agreement, with appropriate Borrower consent rights for any deviation from the waterfall. Under an Administrative Agent discretion approach, the Administrative Agent would have unilateral authority to select a replacement benchmark, which could disadvantage the Borrower.
Recommended Position. Confirm that the benchmark replacement provisions follow the Hardwired Approach and include appropriate Borrower consent rights for any selection of a replacement benchmark outside the pre-specified waterfall.
Priority: Priority 2.
H. "Incremental Facility" / "Incremental Term Loans" Definitions
W&G Draft Provision. The W&G Draft provides for an incremental facility with the following parameters:
• Free-and-Clear Basket: The greater of $280,000,000 and 100% of LTM Adjusted EBITDA (approximately $385,000,000 at closing, growing with EBITDA over time).
• Ratio-Based Incurrence: Unlimited incremental indebtedness, subject to pro forma compliance with a 4.50x first lien net leverage ratio.
• Most Favored Nation (MFN) Protection: A 50 basis point threshold applicable to incremental term loans incurred within the first 12 months after closing. Under the MFN provision, if any incremental term loan is issued at a yield that exceeds the yield on the initial Term Loan B by more than 50 basis points, the interest rate on the initial Term Loan B will be increased to a level that is no more than 50 basis points below the yield on the incremental term loan.
The free-and-clear basket and ratio-based incurrence test are consistent with the Term Sheet. The 50 basis point MFN threshold and the 12-month applicability period are also consistent with the Term Sheet.
Issue — Scope of MFN. The W&G Draft provides that the MFN protection applies to incremental term loans "with a maturity shorter than or equal to" the Term Loan B, which is largely consistent with market practice. However, the W&G Draft further extends the MFN to cover all incremental debt, including revolving credit facilities established as incremental facilities and incremental equivalent debt issued outside the credit agreement (e.g., notes or term loans under separate indentures or credit agreements that benefit from the same collateral and lien priority). The Term Sheet expressly limits the MFN to incremental term loans only, excluding revolving facilities and incremental equivalent debt.
The overbreadth of the W&G Draft's MFN provision could discourage the Borrower from establishing a revolving credit facility in the future (since any revolving facility pricing that exceeds the Term Loan B yield by more than 50 basis points would trigger a step-up on the Term Loan B, even though revolving facilities typically carry higher spreads due to their committed, undrawn nature) or from issuing incremental equivalent debt on terms that are favorable in the capital markets but that would trigger the MFN.
Recommended Position. We recommend limiting the MFN to pari passu incremental term loans only, consistent with the Term Sheet. Revolving credit facilities and incremental equivalent debt should be excluded from the scope of the MFN provision.
Priority: Priority 1.
I. Other Definitional Issues
In addition to the specific definitional issues discussed above, the following definitions require review and potential adjustments:
"Material Adverse Effect." The definition of "Material Adverse Effect" should include customary qualifications and exclusions, including (without limitation) exclusions for (i) changes in general economic, financial, or market conditions; (ii) changes affecting the Borrower's industry generally (including the industrials and manufacturing sectors); (iii) changes in applicable law, regulation, or GAAP; (iv) effects of the announcement or consummation of the transactions contemplated by the credit agreement; (v) changes in geopolitical conditions, acts of terrorism, or natural disasters; and (vi) changes in the Borrower's stock price or credit rating (as distinguished from the underlying causes thereof). We will confirm that the W&G Draft's MAE definition includes all of these standard exclusions.
"Permitted Indebtedness." This definition is addressed in the context of the Indebtedness Covenant analysis in Section VIII.A below.
"Permitted Liens." This definition is addressed in the context of the Liens Covenant analysis in Section VIII.B below.
"Restricted Payment." We will confirm that the definition of "Restricted Payment" includes customary carve-outs for, among other things, (i) repurchases of equity interests from employees, officers, and directors (subject to an annual cap), (ii) tax distributions, (iii) payments under management agreements with the Sponsor, and (iv) dividends on preferred stock.
"Sanctioned Person." We will confirm that this definition is consistent with the requirements of the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, the representations and warranties included in the Term Sheet, and the Borrower's compliance program.
Priority: Priority 2–3.
V. CONDITIONS PRECEDENT TO CLOSING (ARTICLE IV) — ANALYSIS
Article IV of the W&G Draft sets forth the conditions precedent to the initial funding of the Term Loan B. The conditions precedent framework is a critical area because the credit agreement will be executed and the loans funded only if all conditions are satisfied (or waived by the Administrative Agent). The central issue in this area is ensuring that the conditions precedent are consistent with the "limited conditionality" or "certain funds" framework agreed to in the commitment letter.
A. Certain Funds / SunGard Provisions
W&G Draft Provision. The W&G Draft contains a "limited conditionality" or "certain funds" provision that is generally consistent with the commitment letter. Under this framework, the conditions to the initial funding of the Term Loan B are limited to a specified set of conditions, and the Administrative Agent cannot impose additional conditions beyond those expressly set forth. This framework is designed to provide certainty of funding to the Borrower and is a key component of the commitment letter.
Issue — Specified Representations. A critical element of the certain funds framework is the concept of "Specified Representations" — the subset of representations and warranties that must be true and correct as of the closing date. Under market practice and the commitment letter, the Specified Representations should be limited to the following core representations, which are the only representations that the Borrower is required to "bring down" at closing:
(i) Organization and existence;
(ii) Authority and power to enter into the credit agreement and related documents;
(iii) No conflict with organizational documents;
(iv) Enforceability of the credit agreement and related documents;
(v) Federal Reserve margin regulations (Regulation U);
(vi) Investment Company Act status;
(vii) Solvency;
(viii) Use of proceeds;
(ix) OFAC/sanctions/anti-corruption compliance.
We must verify that the W&G Draft's definition of "Specified Representations" is tightly limited to these categories and does not include additional representations (such as financial statements, material litigation, environmental compliance, or ERISA) that could expand the scope of the closing conditions beyond what was agreed in the commitment letter. If the W&G Draft broadens the Specified Representations beyond this list, it would undermine the certain funds framework and introduce the risk that the Administrative Agent could decline to fund based on a representation that was not intended to be a closing condition.
Recommended Position. We recommend ensuring that the Specified Representations are tightly defined and precisely correspond to the representations enumerated in the commitment letter. Any deviation from the commitment letter list should be resisted.
Priority: Priority 1.
B. Deliverables. W&G Draft Provision. The W&G Draft includes a list of deliverables required to be provided at or prior to closing. We need to confirm that this list matches the conditions set forth in the commitment letter. The commitment letter conditions include:
• Executed credit agreement and all ancillary documents (security agreement, guarantee agreement, pledge agreement, and related UCC financing statements);
• Legal opinions from Calderwood & Harkness LLP (New York law and federal law), Hargrove & Whitmore LLP (Illinois law, for the Borrower and Illinois-organized subsidiaries), and Briarcliff Legal Group LLP (Delaware law, for Holdings and Delaware-organized subsidiaries);
• Officer's certificate of the Borrower certifying satisfaction of closing conditions;
• Secretary's certificate of each Loan Party, attaching organizational documents, resolutions, and incumbency certificates;
• Solvency certificate from the Chief Financial Officer of the Borrower;
• Pro forma compliance certificate demonstrating compliance with the financial covenant on a pro forma basis after giving effect to the transactions;
• Evidence of insurance meeting the requirements of the credit agreement;
• Lien search results (UCC, federal tax, judgment, pending litigation) for each Loan Party;
• Certificates of good standing from the state of organization and each material qualification state for each Loan Party.
Issue — Mortgage Delivery at Closing. The W&G Draft includes a requirement that recorded mortgages and title insurance policies for all four mortgaged properties (Schaumburg, IL; Rockford, IL; Greenville, SC; and Houston, TX) be delivered as a condition to closing. This is inconsistent with the Term Sheet, which expressly provides that mortgages and title insurance policies are post-closing deliverables, to be delivered within sixty (60) days of the closing date (i.e., by April 30, 2025, assuming a March 28, 2025, closing).
The preparation and recording of mortgages and the issuance of title insurance policies are complex and time-consuming processes that involve county-level recording, title searches, survey reviews, and coordination with local counsel in each jurisdiction. Requiring these items to be completed before closing would introduce significant closing risk and could delay the transaction. The Term Sheet's 60-day post-closing period was specifically negotiated to avoid this risk.
Recommended Position. Mortgages and title insurance policies must be post-closing deliverables, consistent with the Term Sheet. At closing, the Borrower should be required only to deliver a post-closing undertaking letter obligating it to deliver the recorded mortgages and title insurance policies within 60 days. This is a non-negotiable point that reflects the express agreement of the parties.
Priority: Priority 1.
C. No Material Adverse Effect
W&G Draft Provision. The W&G Draft conditions closing on the absence of any Material Adverse Effect since December 31, 2024 (the "MAE Reference Date"). This is consistent with the commitment letter, which uses the same reference date.
Analysis. The substantive acceptability of this condition depends on the definition of "Material Adverse Effect" as discussed in Section IV.I above. Provided that the MAE definition includes all customary qualifications and exclusions — particularly exclusions for industry-wide conditions, macroeconomic changes, and changes in law — we believe this condition is acceptable. We will confirm the adequacy of the MAE definition and exceptions in our mark-up.
Priority: Priority 2.
D. Payoff of Existing Indebtedness
W&G Draft Provision. The W&G Draft requires, as a condition to closing, evidence of the payoff and termination of all existing indebtedness under the Existing Credit Agreement and the release of all liens securing such indebtedness. Specifically, the Borrower must deliver:
(i) A payoff letter from Atlas Meridian Bank, N.A. (Sandra Vickers, Managing Director) confirming the aggregate payoff amount (currently estimated at $879,375,000, consisting of $875,000,000 in outstanding principal and approximately $4,375,000 of accrued and unpaid interest through the anticipated closing date), the wire transfer instructions, and Atlas Meridian's agreement to release all liens and terminate all commitments upon receipt of the payoff amount;
(ii) Evidence that UCC-3 termination statements have been prepared for filing in all relevant jurisdictions to release Atlas Meridian's security interests; and
(iii) Confirmation that the $190,000,000 revolving credit commitment under the Existing Credit Agreement (currently undrawn) will be terminated upon closing.
Analysis. These requirements are consistent with expectations and standard practice. The UCC-3 termination statements are expected to be filed promptly after closing, with an anticipated filing date of March 31, 2025. We do not anticipate any issues with this condition, provided that the payoff letter from Atlas Meridian is delivered in a timely manner and confirms the release mechanics.
Priority: Priority 3.
VI. REPRESENTATIONS AND WARRANTIES (ARTICLE V) — ANALYSIS
Article V of the W&G Draft contains the representations and warranties to be made by the Borrower (and, in certain cases, by the other Loan Parties). The following issues have been identified.
A. Financial Statements Representation
W&G Draft Provision. The W&G Draft includes a representation that the audited consolidated financial statements of the Borrower and its subsidiaries for fiscal years 2022, 2023, and 2024 have been prepared in accordance with GAAP and present fairly in all material respects the financial condition and results of operations of the Borrower and its subsidiaries as of the dates and for the periods indicated.
Issue. The fiscal year 2024 audited financial statements may not be available prior to the targeted closing date of March 28, 2025. The Borrower's independent auditor is Ashworth & Kendrick LLP (Helen Yamamoto, engagement partner), and the FY 2024 audit is still in progress. We need to confirm with Michelle Kaplan (Chief Financial Officer) and Priya Mehta (Vice President, Treasury) whether the FY 2024 audit is expected to be completed before March 28, 2025. If the audit is not yet complete, the Borrower cannot make a representation regarding audited FY 2024 financial statements without risking a breach of the representation at closing.
Recommended Position. We recommend that the financial statements representation be modified to permit the Borrower to deliver unaudited financial statements for the most recently ended fiscal year if the audited financial statements are not yet available at closing. The representation should provide that the audited financial statements will be delivered promptly upon completion of the audit, and a "bring-down" of the financial statements representation should occur at that time. This approach is consistent with the certain funds framework, under which the financial statements representation is not a Specified Representation required to be true at closing.
Priority: Priority 2.
B. Material Litigation
W&G Draft Provision. The W&G Draft includes a representation that there is no pending or, to the knowledge of the Borrower, threatened litigation, arbitration, or governmental proceeding against the Borrower or any subsidiary that could reasonably be expected to result in liability in excess of $5,000,000.
Issue. The $5,000,000 disclosure threshold appears low for a company of Nexford's size, with $2.1 billion in annual revenue and operations across multiple states and product lines. A $5,000,000 threshold could require disclosure of a large number of routine commercial disputes and employment claims, cluttering the disclosure schedules without providing meaningful information to the lenders. We note that C&H's Litigation group has prepared a separate litigation review memorandum dated February 26, 2025, which should be cross-referenced in finalizing our position.
Recommended Position. We recommend raising the disclosure threshold to $10,000,000, or, alternatively, retaining the $5,000,000 figure but adding a materiality qualifier to the representation (e.g., litigation that is "reasonably expected to result in a Material Adverse Effect" or "reasonably expected to result in liability in excess of $10,000,000"). Either approach would reduce over-disclosure while preserving the lenders' interest in being informed of truly material litigation.
Priority: Priority 2.
C. Environmental Representations
W&G Draft Provision. The W&G Draft includes a broad representation that the Borrower and each subsidiary is in "compliance with all applicable Environmental Laws" and has obtained and maintains all required environmental permits. The representation is not qualified by a knowledge standard or a materiality threshold.
Issue. The Borrower operates manufacturing facilities that have been in continuous operation for decades. While Phase I Environmental Site Assessments have been conducted by Clearwater Environmental Sciences, Inc. (Dr. Nathan Foley, project manager) for each of the four mortgaged properties, and those assessments did not identify any recognized environmental conditions requiring immediate remediation, the absence of a knowledge qualifier or materiality threshold means that any historical environmental non-compliance — even one that is unknown to current management, predates the Sponsor's acquisition, or is immaterial in the context of the Borrower's overall operations — could constitute a breach of the representation.
Recommended Position. We recommend adding two qualifiers: (i) an "in all material respects" qualifier to the compliance representation, and (ii) a "to the knowledge of the Borrower" qualifier with respect to historical environmental conditions (i.e., conditions existing prior to the Sponsor's acquisition in January 2019). These qualifiers are standard market practice in credit agreements for industrials-sector borrowers.
Priority: Priority 2.
D. OFAC / Sanctions / Anti-Corruption Representations
W&G Draft Provision. The W&G Draft includes representations that: (i) no Loan Party, and no director, officer, or employee of any Loan Party, and to the knowledge of the Loan Parties, no agent acting on behalf of any Loan Party, is a Sanctioned Person (as defined with reference to the lists administered by OFAC, the United Nations Security Council, the European Union, and Her Majesty's Treasury); (ii) no proceeds of the Term Loan B will be used, directly or indirectly, in violation of any Sanctions; and (iii) each Loan Party is in compliance with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and the UK Bribery Act 2010.
Analysis. These representations are generally consistent with the Term Sheet and current market practice. C&H's Regulatory Compliance group has prepared a separate memorandum dated February 27, 2025, addressing the Borrower's OFAC/sanctions/anti-corruption compliance program, and the conclusions of that memorandum should be incorporated into our final assessment. Minor wording adjustments may be needed to ensure consistency between the credit agreement representations and the Borrower's existing compliance certifications.
Priority: Priority 3.
E. Solvency Representation
W&G Draft Provision. The W&G Draft includes a solvency representation to be made by the Borrower at closing, supported by a solvency certificate to be delivered by Michelle Kaplan (Chief Financial Officer). The W&G Draft requires that the solvency representation be made on both (i) an entity-by-entity basis (i.e., each Loan Party is individually solvent) and (ii) a consolidated basis (i.e., the Borrower and its subsidiaries, taken as a whole, are solvent after giving effect to all transactions).
Issue. Market practice in sponsor-backed Term Loan B transactions is for the solvency representation and certificate to be delivered on a consolidated basis only, not on an entity-by-entity basis. An entity-level solvency representation would require the Borrower to certify that each of its eleven subsidiary guarantors is individually solvent, which could be problematic for entities that are holding companies, SPVs, or entities that rely on intercompany funding from other group entities. The consolidated solvency approach is the accepted standard and appropriately reflects the creditworthiness of the enterprise as a whole.
Recommended Position. We recommend modifying the representation to require solvency on a consolidated basis only, consistent with market practice. The entity-by-entity solvency requirement should be deleted.
Priority: Priority 2.
F. Other Representations
The W&G Draft includes the following additional representations, which we have reviewed and found to be generally consistent with expectations. Specific drafting adjustments will be proposed in the mark-up where necessary.
Organization and Good Standing. The representation covers all thirteen (13) Loan Party entities: the Borrower (Nexford Industrial Holdings Inc.), Holdings (Granite Peak NIH Holdings, LLC), and the eleven Subsidiary Guarantors. Certificates of good standing from each entity's state of organization and each material qualification state will be delivered at closing.
Authorization and Enforceability. Standard representations regarding corporate authority, due authorization, and enforceability of the credit agreement and related documents against each Loan Party in accordance with their respective terms, subject to customary bankruptcy and equitable principles exceptions.
No Conflicts. Representation that the execution and delivery of the credit agreement and the performance of the transactions contemplated thereby do not and will not conflict with the organizational documents of any Loan Party, any material agreement to which any Loan Party is a party, or any applicable law or regulation.