1005-00001 · Nexford Industrial Holdings · Transaction Documents/Credit Agreement

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PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

TO: Claudia Merritt, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP

FROM: Marcus Leung, Lead Associate, Banking & Finance, Calderwood & Harkness LLP Sophie Tremblay, Working Associate, Banking & Finance, Calderwood & Harkness LLP

DATE: March 13, 2025

RE: Nexford Industrial Holdings Inc. — $1,400,000,000 Senior Secured Term Loan B — Analysis of Incremental Facility Provisions and Capacity

Matter No.: 1005-00001

Client/Matter Code: IBL-NIH-2025-031

I. Executive Summary

The purpose of this memorandum is to analyze the incremental facility provisions contained in the third draft of the Credit Agreement (the "NIH Credit Agreement — Draft 3") expected to be circulated by Whitfield & Gage LLP ("W&G") on March 17, 2025. Our analysis is based on the second draft of the Credit Agreement circulated by W&G on March 5, 2025, updated to reflect the status of ongoing negotiations between the parties as of the date of this memorandum, March 13, 2025. The Credit Agreement governs the $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B" or the "Facility") among Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower"), the Guarantors party thereto from time to time, Crescent Harbor Bank, N.A. ("Crescent Harbor"), as Administrative Agent and Collateral Agent, and the Lenders from time to time party thereto.

The incremental facility provisions in the Credit Agreement are structured around two primary capacity prongs: (1) a fixed "free-and-clear" basket, set at the greater of $280,000,000 and 100% of LTM Consolidated EBITDA, which does not require pro forma financial covenant compliance at the time of incurrence; and (2) an uncapped ratio-based incurrence basket that permits unlimited incremental borrowings provided that, on a pro forma basis, the Borrower's first lien net leverage ratio does not exceed 4.50 to 1.00. In addition, the Credit Agreement permits the Borrower to incur incremental equivalent debt outside the four corners of the Credit Agreement — through separate credit agreements, note purchase agreements, or indentures — sharing the same capacity as the in-agreement incremental facilities.

Our summary conclusion is as follows: the incremental facility provisions as currently drafted provide substantial future borrowing flexibility to Nexford and its private equity sponsor, Granite Peak Capital Partners, LP ("Granite Peak"). At closing, the combined theoretical incremental capacity (free-and-clear basket plus ratio-based basket) is estimated at approximately $817,500,000, which represents a significant financing runway for bolt-on acquisitions, potential dividend recapitalizations, and other capital deployment strategies. However, several points remain open or warrant borrower-favorable revisions, as discussed in detail in Section IX of this memorandum. These include, among others, the inclusion of a "leverage ratio starter" provision in the ratio-based incurrence test, clarification of maturity restrictions for junior lien and unsecured incremental equivalent debt, and confirmation of reclassification rights between the two capacity baskets on a post-incurrence basis.

This memorandum should be read in conjunction with the Credit Agreement Issues List — Version 2.0, dated March 6, 2025, and the C&H Marked Second Draft of the Credit Agreement, which was returned to W&G on March 8, 2025, for the broader context of the ongoing negotiations regarding these and other provisions of the Credit Agreement.

II. Background and Context

A. Transaction Overview

Nexford Industrial Holdings Inc. is a Delaware corporation headquartered at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford operates as a diversified industrials and specialty manufacturing platform, serving customers across the aerospace, automotive, energy, and general industrial end-markets. For the twelve-month period ended December 31, 2024, Nexford reported revenue of approximately $2.1 billion and LTM Adjusted EBITDA of $385,000,000, reflecting both organic growth and the contribution of recent bolt-on acquisitions.

Nexford is a portfolio company of Granite Peak Capital Partners, LP, a private equity firm with approximately $14 billion of assets under management focused on middle-market industrials and business services investments. Granite Peak holds its equity interest in Nexford through Granite Peak NIH Holdings, LLC ("Holdings"), a Delaware limited liability company that serves as the direct parent of the Borrower and is expected to be a Guarantor under the Credit Agreement.

The $1,400,000,000 Term Loan B is being structured to accomplish the following purposes. First, the proceeds will refinance Nexford's existing first lien credit facilities, consisting of an $875,000,000 first lien term loan and a $190,000,000 revolving credit facility, both of which were incurred under the Credit Agreement dated June 14, 2019, as amended through the Fourth Amendment dated September 12, 2024, with Atlas Meridian Bank, N.A. as administrative agent (collectively, the "Existing Credit Facilities"). The Existing Credit Facilities will be repaid in full and terminated at closing. Second, after deducting transaction fees and expenses (estimated at approximately $[TBD] million, including arranger fees, upfront lender OID, and advisory fees), the remaining net proceeds of approximately $335,000,000 will be used to fund a dividend recapitalization to Granite Peak and its co-investors, returning capital in connection with the platform's strong performance and deleveraging since Granite Peak's initial acquisition.

Nexford's existing $250,000,000 aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Existing Notes") will remain outstanding and are not being refinanced as part of this transaction. Pinnacle Trust Company serves as trustee under the Indenture governing the Existing Notes, dated November 8, 2021. The continued existence of the Existing Notes is relevant to the incremental facility analysis because the Notes Indenture contains incurrence-based covenants that impose separate limitations on additional indebtedness, as discussed further in Section VII below.

The pro forma capital structure at closing is as follows:

Based on this capital structure and LTM Adjusted EBITDA of $385,000,000, the pro forma leverage metrics at closing are as follows:

• Pro forma first lien net leverage: approximately 3.38x, calculated as ($1,400,000,000 − $100,000,000) ÷ $385,000,000 = 3.3766x, rounded to 3.38x.

• Pro forma total net leverage: approximately 4.03x, calculated as ($1,400,000,000 + $250,000,000 − $100,000,000) ÷ $385,000,000 = 4.0260x, rounded to 4.03x.

Crescent Harbor Bank, N.A., located at 320 Federal Street, Boston, Massachusetts 02110, serves as sole lead left arranger, sole bookrunner, administrative agent, and collateral agent under the Credit Agreement. The joint lead arrangers are Ironwood Capital Markets, LLC and Northvane Securities, Inc., each of which is expected to hold a portion of the Term Loan B at closing before syndication to a broader group of institutional investors, including CLO vehicles and credit funds.

The interest rate on the Term Loan B is Term SOFR plus 400 basis points, subject to a SOFR floor of 0.75%. The facility was offered at an original issue discount of 99.50 (i.e., 50 basis points of OID). The stated maturity date of the Term Loan B is March 28, 2032, representing a seven-year tenor from the target closing date of March 28, 2025. Quarterly amortization payments of $3,500,000 (representing 1.00% per annum of the initial principal amount) are required, with the balance payable at maturity. The Credit Agreement also includes an excess cash flow sweep mechanism, with sweep percentages stepping down based on first lien net leverage levels, as discussed further in Section VIII.B below.

B. Importance of Incremental Provisions

Incremental facility provisions are among the most critical — and most heavily negotiated — features of any sponsor-backed leveraged credit facility. They represent the primary contractual mechanism by which a borrower can access additional debt capital within the framework of an existing credit agreement, without the need for a full amendment requiring the consent of all or a majority of existing lenders. For a private-equity-sponsored borrower like Nexford, the incremental provisions are essential to the execution of the sponsor's value creation strategy, which typically involves some combination of bolt-on acquisitions, capital expenditures, working capital investments, and potential further returns of capital to equity holders.

In the case of Nexford, the significance of the incremental provisions is underscored by the company's demonstrated acquisition-driven growth trajectory. Since Granite Peak's acquisition of the platform, Nexford has completed four bolt-on acquisitions, each financed in part through existing credit facility capacity:

(i) Clearfield Tool & Die, Inc. (2021) — a precision machining and tooling company that expanded Nexford's aerospace component capabilities;

(ii) Summit Industrial Fabrication Co. (2022) — a structural steel and custom fabrication business that broadened Nexford's energy infrastructure offerings;

(iii) Ridgepoint Specialty Coatings, LLC (2023) — a specialty coatings and surface treatment company that added higher-margin, value-added services to the platform; and

(iv) Lakeshore Precision Engineering, Inc. (2024) — a precision engineering and tight-tolerance manufacturing operation that further consolidated Nexford's position in the automotive supply chain.

Granite Peak's stated strategy contemplates continued bolt-on acquisitions, and the incremental provisions in the Credit Agreement will be the primary mechanism by which Nexford finances the debt component of future transactions. Additionally, the incremental provisions may be used to fund future dividend recapitalizations if the Borrower's financial performance and leverage profile support additional returns to equity holders.

It is also important to note that no new revolving credit facility is being established as part of this transaction. The existing $190,000,000 revolving credit facility under the Existing Credit Facilities is being terminated at closing, and no replacement revolver is being put in place. As a result, the incremental facility provisions serve the additional function of permitting Nexford to add a revolving credit facility post-closing if the need arises, whether to fund working capital, provide liquidity support, or backstop letters of credit. The Credit Agreement expressly permits incremental revolving credit commitments under the free-and-clear basket, and this is an important feature that we have confirmed in our review of the current draft.

III. The Free-and-Clear Basket (Fixed Dollar / EBITDA-Based Basket)

A. Structure. Section 2.14(a) of the Credit Agreement provides that the Borrower may request, from time to time after the Closing Date, one or more increases to the existing Term Loan B commitments or additional tranches of term loans, and/or one or more new revolving credit commitments (each, an "Incremental Facility"), in an aggregate principal amount not to exceed (without duplication) the greater of:

(x) $280,000,000 (the "Fixed Dollar Component"); and

(y) an amount equal to 100% of LTM Consolidated EBITDA (as defined in the Credit Agreement, and as adjusted for permitted add-backs) calculated as of the last day of the most recently ended test period for which financial statements have been delivered or were required to be delivered pursuant to Section 6.01 (the "Grower Component"),

in each case, minus the aggregate principal amount of Incremental Equivalent Debt previously incurred in reliance on this basket that remains outstanding (collectively, the "Free-and-Clear Basket").

No pro forma financial covenant compliance is required to draw on the Free-and-Clear Basket — the capacity is available solely upon satisfaction of certain non-financial conditions (described in Section III.B below). This is the origin of the "free and clear" designation: the basket is "free" from any financial test and "clear" of any leverage constraint.

As of the anticipated Closing Date (March 28, 2025), the effective capacity under the Free-and-Clear Basket is $385,000,000, representing the greater of (x) $280,000,000 and (y) 100% of LTM Consolidated EBITDA of $385,000,000 (based on the twelve-month period ended December 31, 2024). The Fixed Dollar Component of $280,000,000 represents approximately 20.0% of the initial Term Loan B facility size ($280,000,000 ÷ $1,400,000,000 = 20.0%) and approximately 72.7% of LTM Adjusted EBITDA ($280,000,000 ÷ $385,000,000 = 72.73%). While the Fixed Dollar Component establishes a floor for the Free-and-Clear Basket, it is the Grower Component that will likely govern at closing and, assuming continued EBITDA growth, for the foreseeable future.

The inclusion of the Grower Component is a borrower-favorable feature that ensures the Free-and-Clear Basket expands in lockstep with Nexford's earnings growth. As the company achieves higher EBITDA — whether through organic growth, operational improvements, or completed acquisitions (with acquired EBITDA added on a pro forma basis) — the Free-and-Clear Basket increases dollar-for-dollar with any EBITDA improvement. This creates a dynamic, self-adjusting capacity that rewards strong performance with enhanced financial flexibility.

B. Conditions to Incurrence Under the Free-and-Clear Basket

Although the Free-and-Clear Basket does not require pro forma compliance with any financial ratio, the Credit Agreement imposes the following conditions on any incurrence under this basket:

(1) No Default or Event of Default. No Event of Default or Default shall exist at the time of the incurrence or would result therefrom, both immediately before and immediately after giving effect to the incurrence and the application of proceeds thereof. This is a standard condition that prevents the Borrower from layering on additional debt when the credit facility is already in a state of distress or potential distress.

(2) Representations and Warranties. The representations and warranties of the Borrower and each Guarantor set forth in the Credit Agreement and each other Loan Document shall be true and correct in all material respects (or, in the case of representations and warranties qualified by "materiality" or "Material Adverse Effect," in all respects) as of the date of such incurrence. Importantly, this condition is subject to the "SunGard" or "certain funds" limited conditionality provisions set forth in Section 1.10 of the Credit Agreement, which provide that if the incremental facility is being incurred in connection with a Limited Condition Acquisition (as defined), the representations and warranties condition is limited to the "Specified Representations" — a narrower set of representations (including organization, authorization, no conflicts, and solvency) that are customarily tested in acquisition financings to provide certainty of funding.

(3) Eligible Assignees. Each incremental lender must qualify as an "eligible assignee" under the Credit Agreement — that is, it must not be a "disqualified lender" as defined in Section 1.01. The disqualified lender list, which is maintained by the Administrative Agent and was established by the Borrower (with input from Granite Peak) at the time of initial syndication, includes competitors of Nexford, vulture and distressed-debt funds identified by the Borrower, and their respective affiliates. This condition ensures that the Borrower retains control over the identity of its incremental lenders, consistent with the same protections applicable to assignments under Section 10.06.

(4) Documentation Requirements. The incremental facility must be documented in one of two ways: (i) for incremental term loans or revolving credit commitments to be incurred under the Credit Agreement, through an amendment to the Credit Agreement (an "Incremental Facility Amendment") executed by the Borrower, the Administrative Agent, and the incremental lenders (but not requiring the consent of any existing lenders); or (ii) for Incremental Equivalent Debt (discussed in Section VI), through separate documentation (such as a note purchase agreement or indenture) in form and substance reasonably satisfactory to the Administrative Agent.

C. Key Observations and Negotiation Points

We have identified the following observations and negotiation points with respect to the Free-and-Clear Basket:

Grower Component. As noted above, the floating prong of the Free-and-Clear Basket (100% of LTM Consolidated EBITDA) operates as a "grower" that effectively transforms the free-and-clear basket from a fixed dollar amount into a dynamic, EBITDA-linked capacity. This is a borrower-favorable feature and is consistent with prevailing market practice for sponsor-backed Term Loan B transactions in the current lending environment. We note that the 100% of EBITDA formulation represents the more aggressive end of the market range; some transactions set the grower at 75% or even 50% of EBITDA, though the 100% level has become increasingly standard in recent years, particularly for transactions arranged by bulge-bracket and large regional banks such as Crescent Harbor. We do not anticipate significant pushback from the syndicate on this point.

Reclassification and Reallocation. The current draft of the Credit Agreement permits the Borrower to reclassify amounts from the Free-and-Clear Basket to the ratio-based basket (and vice versa) at the time of incurrence. This reclassification right is a critical feature that provides the Borrower with maximum flexibility in structuring incremental borrowings. In practice, the reclassification mechanism operates as follows: if the Borrower initially incurs $200,000,000 of incremental term loans under the Free-and-Clear Basket, the Borrower may subsequently reclassify (or "redesignate") that $200,000,000 as having been incurred under the ratio-based basket, thereby restoring $200,000,000 of Free-and-Clear Basket capacity — provided that, at the time of such redesignation, the Borrower can demonstrate pro forma compliance with the 4.50x first lien net leverage ratio incurrence test (giving effect to the $200,000,000 as ratio-based debt). This "freed up" Free-and-Clear Basket capacity can then be used for subsequent incremental borrowings without any financial test. We address below in Section IX.A.5 our recommendation that the reclassification right be expanded to permit redesignation not only at the time of incurrence but also at any subsequent time after incurrence.

No Revolving Facility at Closing. As discussed in Section II.B above, no revolving credit facility is being established at closing. The Free-and-Clear Basket therefore serves as the expected avenue for adding a revolving credit facility post-closing. The current draft of the Credit Agreement expressly permits the incurrence of incremental revolving credit commitments under the Free-and-Clear Basket, which is essential and appropriate. We have confirmed that the relevant language in Section 2.14(a) refers to both "additional term loan commitments" and "revolving credit commitments," and that the definition of "Incremental Facility" is broad enough to encompass either type of commitment. No further revision is needed on this point.

EBITDA Measurement Period. We recommend confirming that the "most recent test period" used for measuring LTM Consolidated EBITDA for purposes of the Grower Component is defined as the four consecutive fiscal quarters ending on the last day of the most recently completed fiscal quarter for which financial statements have been delivered (or were required to be delivered) pursuant to Section 6.01 of the Credit Agreement. This definition ensures that the Borrower is not penalized by using stale financial data if more recent quarterly results have not yet been finalized. The draft language in the current version of the Credit Agreement is acceptable in this regard, and we have confirmed that pro forma adjustments for acquisitions completed and dispositions consummated during or after the relevant test period are permitted under the definition of Consolidated EBITDA. No further revision is recommended on this specific point.

IV. The Ratio-Based Incurrence Basket

A. Structure. Section 2.14(a)(ii) of the Credit Agreement provides that, in addition to the Free-and-Clear Basket described in Section III above, the Borrower may incur unlimited incremental term loans and/or revolving credit commitments, subject to the condition that, after giving pro forma effect to the incurrence of such incremental debt (and the application of proceeds thereof, including the consummation of any acquisition or other investment being financed with such proceeds), the Borrower's pro forma first lien net leverage ratio (the "First Lien Net Leverage Ratio") does not exceed 4.50 to 1.00 (the "Ratio Incurrence Test").

This is a "ratio" basket in the truest sense — there is no dollar cap on the amount of incremental debt that may be incurred thereunder. The sole constraint is the leverage test itself. If the Borrower's pro forma First Lien Net Leverage Ratio, after giving effect to the incremental borrowing and the application of proceeds, does not exceed 4.50x, the incurrence is permitted regardless of the dollar amount. This structure provides the Borrower with theoretically uncapped capacity, limited only by its ability to demonstrate compliance with the leverage test at the time of each incurrence.

The First Lien Net Leverage Ratio is defined in Section 1.01 of the Credit Agreement as:

(Consolidated First Lien Debt minus Unrestricted Cash and Cash Equivalents) ÷ Consolidated EBITDA for the Most Recently Ended Test Period

where "Consolidated First Lien Debt" includes all indebtedness secured by a first-priority lien on the Collateral (including the Term Loan B and any incremental first lien facilities), "Unrestricted Cash and Cash Equivalents" means cash and cash equivalents of the Borrower and its Restricted Subsidiaries that are not subject to any lien (other than liens in favor of the Collateral Agent) or contractual restriction on use, and "Most Recently Ended Test Period" means the four consecutive fiscal quarters most recently ended for which financial statements have been delivered or were required to be delivered under Section 6.01.

The 4.50x first lien net leverage threshold is positioned 112 basis points above the pro forma first lien net leverage ratio at closing of 3.38x. This provides meaningful "day one" headroom for incremental borrowings. Equally significant, the threshold is set 50 basis points below the springing financial maintenance covenant level of 5.00x first lien net leverage (applicable only when the revolving credit facility, once established, is drawn in excess of 35% of commitments), ensuring that incurrence of incremental debt under this basket will not, by itself, cause a financial covenant default.

B. Calculation of Available Ratio Capacity at Closing

To illustrate the magnitude of the incremental capacity available under the ratio-based basket at closing, we set forth the following calculation:

Inputs:

• Pro forma first lien net leverage at closing: 3.38x (rounded; precise calculation: ($1,400,000,000 − $100,000,000) ÷ $385,000,000 = 3.3766x)

• Maximum permitted first lien net leverage under the Ratio Incurrence Test: 4.50x

• Leverage cushion: 4.50x − 3.38x = 1.12x

• Dollar equivalent of leverage cushion: 1.12 × $385,000,000 = approximately $431,200,000

Iterative Calculation:

The simple cushion calculation above slightly overstates the available capacity because it does not account for the fact that the incremental debt itself increases the numerator of the leverage ratio. To solve for the precise capacity, we must set up the following equation, letting $X represent the maximum amount of incremental first lien debt that may be incurred:

($1,300,000,000 + $X) ÷ $385,000,000 ≤ 4.50

where $1,300,000,000 represents the net first lien debt at closing ($1,400,000,000 Term Loan B minus $100,000,000 unrestricted cash). Solving for $X:

$X ≤ ($385,000,000 × 4.50) − $1,300,000,000

$X ≤ $1,732,500,000 − $1,300,000,000

$X ≤ $432,500,000

Accordingly, at closing, the Borrower could incur up to approximately $432,500,000 of additional first lien debt under the ratio-based basket alone, assuming no change in EBITDA or cash balances other than the incremental borrowing itself. We note that if the proceeds of the incremental borrowing were deposited as unrestricted cash (for example, pending the closing of an acquisition), the netting effect would increase the available capacity further, though this benefit would be temporary.

Combined Capacity (Free-and-Clear + Ratio):

At closing, the Borrower's combined theoretical incremental capacity is:

• Free-and-Clear Basket: $385,000,000 (100% of LTM EBITDA, which exceeds the $280,000,000 fixed component)

• Ratio-Based Basket: approximately $432,500,000

• Total theoretical maximum: approximately $817,500,000

We emphasize the word "theoretical" because, in practice, utilization of the Free-and-Clear Basket would itself increase the Borrower's first lien net leverage ratio, thereby reducing the remaining capacity under the ratio-based basket. For example, if the Borrower incurred $385,000,000 under the Free-and-Clear Basket, its pro forma first lien net leverage would increase to approximately 4.38x (($1,300,000,000 + $385,000,000) ÷ $385,000,000 = 4.3766x), leaving only approximately $47,500,000 of residual ratio-based capacity. The interplay between the two baskets means that the total effective capacity is less than the simple sum of the two individual baskets, and the optimal structuring of any incremental borrowing will depend on the specific facts and circumstances at the time.

C. Key Observations and Negotiation Points

We have identified the following observations and negotiation points with respect to the ratio-based incurrence basket:

Test Level Relative to Closing Leverage and Financial Covenant. The 4.50x Ratio Incurrence Test level occupies what we view as an appropriate position in the credit structure: it provides 112 basis points of headroom above closing leverage (3.38x), giving the Borrower meaningful room to incur additional debt without requiring earnings growth, while remaining 50 basis points below the springing financial maintenance covenant level of 5.00x. This 50-basis-point buffer is significant because it means that even if the Borrower maximizes its ratio-based incurrence capacity, it would still have a cushion before triggering a financial covenant violation — assuming EBITDA and cash balances remain stable. This calibration is consistent with market standards for sponsor-backed Term Loan B transactions in the current environment and is in line with the terms of the Crescent Harbor commitment letter dated February 14, 2025.

Pro Forma Adjustments and EBITDA Add-Backs. The pro forma leverage calculation under the Ratio Incurrence Test incorporates the same Consolidated EBITDA definition used throughout the Credit Agreement, which includes customary "run-rate" cost savings, operating expense reductions, and synergies add-backs that are projected to be achieved within 24 months of the relevant action giving rise to such savings or synergies. These add-backs are subject to an aggregate cap of $28,000,000, consistent with the broader Adjusted EBITDA definition, and are comprised of the following components:

• Acquisition-related costs (including transaction advisory fees, legal fees, and due diligence expenses): $12,000,000

• Non-recurring restructuring charges (including facility consolidation, workforce reduction, and severance costs): $8,500,000

• Sponsor management fees (annual advisory and monitoring fees payable to Granite Peak): $4,500,000

• Integration costs (including systems integration, rebranding, and supply chain optimization): $3,000,000

The inclusion of these add-backs effectively increases the denominator of the leverage ratio, thereby expanding the Borrower's ratio-based capacity. This is an important feature to preserve in subsequent drafts, and we do not anticipate material pushback from W&G or the syndicate on the existing add-back formulation.

Testing Methodology — "Most Favorable" Test Period. Under the current draft, if the incremental debt is being incurred in connection with an acquisition or other permitted investment, the Borrower may elect to test compliance with the Ratio Incurrence Test on a pro forma basis giving effect to the acquisition and the related financing. However, the draft is currently silent on whether the Borrower may elect which test period to use if financial statements for a more recently ended fiscal quarter have been delivered (or were required to be delivered) but reflect a less favorable EBITDA profile than the prior quarter's financials. In a declining-EBITDA environment, this flexibility is critical: the Borrower should be permitted to elect the most favorable test period among those for which financial statements are available (or were required to be available), rather than being forced to use the most recent period. We have flagged this issue in the Credit Agreement Issues List v2.0 and recommend that C&H include an express "most favorable test period" election right in the next mark-up.

Netting of Cash. The First Lien Net Leverage Ratio definition uses a net leverage construct — that is, Unrestricted Cash and Cash Equivalents are deducted from Consolidated First Lien Debt in the numerator. At closing, $100,000,000 of cash is netted against the $1,400,000,000 Term Loan B balance, producing a net first lien debt figure of $1,300,000,000. This netting convention is important in the context of incremental borrowings because, if the proceeds of an incremental facility are temporarily held as cash (for example, pending the closing of an acquisition), the incremental debt added to the numerator is partially or fully offset by the corresponding increase in the cash balance. The draft should confirm that newly borrowed proceeds sitting in the Borrower's or a Restricted Subsidiary's accounts qualify as "Unrestricted Cash and Cash Equivalents" for netting purposes, and we have confirmed that the current definition is sufficiently broad to accommodate this treatment.

Leverage Ratio Starter Provision. We recommend that C&H push for the inclusion of a "Leverage Ratio Starter" provision in the next mark-up. Under this provision, the Ratio Incurrence Test would be deemed satisfied if the Borrower's pro forma First Lien Net Leverage Ratio at the time of incurrence does not exceed the greater of (a) 4.50 to 1.00 and (b) the pro forma First Lien Net Leverage Ratio as of the Closing Date (i.e., 3.38x). As a practical matter, this provision would have no effect so long as the Borrower's pro forma leverage at the time of incurrence is at or below 4.50x. However, if there were a leveraging transaction or a decline in EBITDA that pushed pro forma leverage above 4.50x, the Leverage Ratio Starter would ensure that the Borrower could still incur incremental debt up to the closing date leverage level. This provision is increasingly common in recent sponsor-backed transactions and provides an important safety valve for the Borrower's financing flexibility. The current W&G draft does not include a Leverage Ratio Starter, and we have flagged this as an open item in the Credit Agreement Issues List v2.0 for resolution in the March 17 draft.

V. The Most Favored Nation (MFN) Protection

A. Overview. Section 2.14(d) of the Credit Agreement contains a most favored nation ("MFN") clause that protects the existing Term Loan B lenders against being economically disadvantaged by the pricing of any incremental term loans incurred within the first twelve months after the Closing Date (i.e., through March 28, 2026). The MFN provision operates as a "spread ratchet" mechanism: if any incremental term loan issued during the MFN protection period carries an effective yield that exceeds the effective yield on the initial Term Loan B by more than a specified threshold, the interest rate spread on the initial Term Loan B is automatically increased to the level that is equal to the incremental term loan's effective yield minus the threshold.

Specifically, the MFN clause in the current draft provides as follows: if the effective yield (calculated as described below) applicable to any incremental term loan incurred during the first twelve months after the Closing Date exceeds the effective yield on the initial Term Loan B by more than 50 basis points (the "MFN Threshold"), the applicable margin on the initial Term Loan B shall be increased by the amount necessary to cause the effective yield on the initial Term Loan B to equal the effective yield on such incremental term loan minus 50 basis points.

For purposes of this provision, "effective yield" is defined to include:

(i) the applicable margin (interest rate spread over Term SOFR);

(ii) any original issue discount ("OID") or upfront fees payable to the lenders, in each case amortized over the shorter of (a) the expected weighted average life of the applicable term loan and (b) four years from the date of incurrence; and

(iii) the benefit of any SOFR floor differential — that is, if the incremental term loan has a higher SOFR floor than the initial Term Loan B, the difference is treated as additional effective yield.

The initial Term Loan B bears interest at Term SOFR + 400 basis points, with a SOFR floor of 0.75%, and was issued at an original issue discount of 99.50 (i.e., 50 basis points of OID). Amortizing the 50 basis points of OID over a four-year assumed life produces an annualized yield increment of approximately 12.5 basis points per annum. Accordingly, the effective yield on the initial Term Loan B is approximately Term SOFR + 412.5 basis points (400 bps margin + 12.5 bps amortized OID), plus the benefit of the 0.75% SOFR floor to the extent that Term SOFR trades below 0.75% at the relevant time.

Applying the 50 basis point MFN Threshold, the initial Term Loan B spread would ratchet up only if an incremental term loan's effective yield exceeds approximately Term SOFR + 462.5 basis points (inclusive of OID, upfront fees, and any SOFR floor differential). Any incremental term loan priced at or below this level would not trigger the MFN ratchet.

B. Scope and Exceptions

The MFN protection in the Credit Agreement applies exclusively to incremental term loans — it does not extend to revolving credit commitments added as incremental facilities, which is consistent with market convention. Revolving credit facilities inherently carry a different pricing structure (including commitment fees on undrawn amounts, participation fees on letter of credit exposure, and different spread levels reflecting the shorter-duration, revolving nature of the commitment) and are therefore appropriately excluded from the MFN analysis.

In addition to the revolving credit carve-out, the current draft includes the following customary exceptions to the MFN clause, under which incremental term loans may be priced at any level without triggering a spread ratchet on the initial Term Loan B:

(i) Long-Dated Exception. Incremental term loans with a stated maturity date that is at least two years beyond the maturity of the initial Term Loan B (i.e., maturing on or after March 28, 2034) are excluded from the MFN protection. The rationale is that the longer maturity represents a fundamentally different risk profile and credit duration, and incremental lenders providing such longer-dated capital are entitled to compensation for the additional time risk without that pricing flowing back to the shorter-dated initial Term Loan B lenders.

(ii) Acquisition-Specific Exception. Incremental term loans incurred to finance a specific acquisition, where the aggregate principal amount of such incremental term loans does not exceed the amount reasonably necessary to consummate such acquisition (including the payment of related fees, premiums, expenses, and the refinancing of any existing target debt), and where such incremental term loans have a stated maturity date that is at least one year beyond the maturity of the initial Term Loan B (i.e., maturing on or after March 28, 2033), are excluded from the MFN protection. This exception recognizes that acquisition-linked financing often carries different pricing dynamics driven by the specific credit profile of the combined entity and the urgency of execution timing.

(iii) Incremental Equivalent Debt Exception. Incremental Equivalent Debt (discussed in Section VI below), which is incurred outside the Credit Agreement through separate documentation, is not subject to the MFN clause. Because Incremental Equivalent Debt is priced in a separate instrument (whether a note purchase agreement, indenture, or separate credit agreement), the pricing is determined by a different market and investor base, and the MFN concept does not apply.

C. Key Observations and Negotiation Points

12-Month Sunset. The MFN protection has a 12-month sunset period, expiring on March 28, 2026. After that date, the Borrower is free to price any incremental term loan at any level without concern that the spread on the initial Term Loan B will ratchet upward. The 12-month sunset is market-standard for broadly syndicated Term Loan B transactions and was specified in the Crescent Harbor commitment letter dated February 14, 2025. A shorter sunset period (e.g., 6 months) would be more borrower-favorable, but we believe the 12-month period is appropriate and unlikely to generate pushback from the syndicate. Conversely, we should be alert to any attempt by W&G in the next round of negotiations to extend the sunset period to 18 or 24 months, which would be atypical and lender-favorable; we would push back firmly against any such extension.

50 Basis Point Threshold. The MFN Threshold of 50 basis points sits at the more borrower-favorable end of the current market spectrum. Market practice in 2024–2025 broadly syndicated loan transactions has ranged from 0 basis points (a "full MFN," where any pricing differential triggers a ratchet) to 75 basis points, with 50 basis points emerging as the most common level in recent sponsor-backed deals. We note that a lower threshold (e.g., 25 basis points) would be more protective of the existing lenders, while a higher threshold (e.g., 75 basis points) would provide the Borrower with greater pricing flexibility on incremental issuances. The 50 basis point level is consistent with the commitment letter and should be acceptable to Crescent Harbor's syndicate investors, which are expected to include CLO vehicles such as Ridgeline Asset Management, LP, Cascadia Loan Fund III, LP, and institutional credit funds such as Bluewater Fixed Income Fund, LP and Halcyon Credit Partners, LLC. We do not recommend seeking a wider threshold at this time, as it could complicate syndication.

Effective Yield Definition. The definition of "effective yield" in the MFN clause is a critically important mechanic, as it determines the baseline against which the MFN threshold is measured. The current draft's definition, which captures the applicable margin, OID/upfront fees (amortized over the shorter of four years and the weighted average life), and any SOFR floor differential, is comprehensive and market-standard. We have reviewed the definition and confirmed that it does not contain any gaps or loopholes that would allow the Borrower to structure around the MFN protection (for example, by paying incremental lenders through mechanisms not captured by the effective yield definition). The definition is acceptable in its current form.

Interaction with the Free-and-Clear Basket. The MFN protection applies to all incremental term loans incurred during the 12-month protection period, regardless of whether the incurrence is made under the Free-and-Clear Basket or the ratio-based basket. This is the correct market approach: the MFN protection is a pricing protection for the initial Term Loan B lenders, and the capacity basket under which the incremental loan is incurred is relevant only to the quantum of the permitted borrowing, not to the applicable pricing protections. The current draft correctly reflects this principle, and no revision is needed.

Overall Assessment. The MFN provisions in the current draft are generally acceptable and consistent with the terms of the Crescent Harbor commitment letter. We do not recommend any further revisions to the MFN clause at this time. However, we should monitor subsequent drafts from W&G closely to ensure that the exceptions to the MFN clause are not narrowed (for example, by removing the acquisition-specific exception or shortening the "long-dated" carve-out from two years to one year beyond the initial maturity) and that the 12-month sunset period is not shortened or extended in a manner inconsistent with the commitment letter terms.

VI. Incremental Equivalent Debt

A. Structure. Section 2.14(b) of the Credit Agreement provides a parallel pathway for the Borrower to incur additional debt outside the four corners of the Credit Agreement itself, through the issuance of what the agreement terms "Incremental Equivalent Debt." Incremental Equivalent Debt encompasses pari passu secured debt, junior lien secured debt, or unsecured debt that is incurred through separate documentation — such as a separate credit agreement with a direct lending fund, a note purchase agreement with institutional investors, or an indenture for high-yield bonds — rather than through an amendment to the Credit Agreement.

The Incremental Equivalent Debt capacity shares the same baskets as the in-agreement incremental facilities described in Sections III and IV above. That is, Incremental Equivalent Debt may be incurred under either the Free-and-Clear Basket (up to the greater of $280,000,000 and 100% of LTM EBITDA, without a financial test) or the ratio-based basket (unlimited, subject to the 4.50x first lien net leverage Ratio Incurrence Test), and the outstanding amount of Incremental Equivalent Debt reduces the available capacity under the applicable basket dollar-for-dollar. Incremental Equivalent Debt does not represent a separate, additional source of capacity beyond the in-agreement incremental facilities; it is simply an alternative mechanism for accessing the same capacity through different documentation and capital markets channels.

Importantly, the Credit Agreement addresses the intercreditor implications of Incremental Equivalent Debt as follows:

• Pari Passu First Lien Incremental Equivalent Debt. If the Incremental Equivalent Debt is secured on a pari passu (equal priority) basis with the Term Loan B, it must be subject to the terms of a First Lien Intercreditor Agreement (or a substantially similar intercreditor arrangement) entered into between Crescent Harbor Bank, N.A., as existing Collateral Agent, and the collateral agent or representative for the holders of such pari passu debt. The First Lien Intercreditor Agreement will govern, among other things, the sharing of collateral proceeds, the exercise of remedies, the release of collateral and guarantees, and DIP financing and adequate protection rights in a bankruptcy proceeding.

• Junior Lien Incremental Equivalent Debt. If the Incremental Equivalent Debt is secured on a junior (second priority) lien basis, it must be subject to a customary First Lien/Second Lien Intercreditor Agreement, establishing the priority of the first lien obligations over the junior lien obligations and imposing standstill and other subordination protections for the benefit of the first lien lenders.

• Unsecured Incremental Equivalent Debt. Unsecured Incremental Equivalent Debt does not require an intercreditor agreement, though its terms must comply with the conditions described in Section VI.B below.

The Credit Agreement includes a standing authorization for the Administrative Agent to execute and deliver any such intercreditor agreements (or amendments or supplements to existing intercreditor agreements, including joinder agreements adding additional first lien obligations) on behalf of the lenders, without requiring the individual consent of any lender. This "pre-authorization" provision is essential to the practical functionality of the Incremental Equivalent Debt framework, as it eliminates the need for the Borrower to solicit lender-by-lender consent each time an intercreditor arrangement must be executed in connection with an incurrence of Incremental Equivalent Debt.

B. Conditions. The incurrence of Incremental Equivalent Debt is subject to the following conditions, which mirror and supplement the conditions applicable to in-agreement incremental facilities:

(1) Basket Compliance. The Incremental Equivalent Debt must be incurred in reliance on, and in compliance with, either the Free-and-Clear Basket (Section 2.14(a)(i)) or the ratio-based basket (Section 2.14(a)(ii)), and the outstanding amount of such Incremental Equivalent Debt reduces the available capacity under the applicable basket.

(2) No Default or Event of Default. No Event of Default or Default shall exist at the time of incurrence or result therefrom.

(3) Representations and Warranties. The representations and warranties must be true and correct in all material respects (subject to the same limited conditionality provisions applicable to in-agreement incremental facilities).

(4) Eligible Lenders. The initial purchasers or lenders of the Incremental Equivalent Debt must be eligible assignees (i.e., not disqualified lenders) under the Credit Agreement. As discussed in Section VI.C below, the applicability of this restriction to secondary market purchasers of Incremental Equivalent Debt is ambiguous under the current draft.

(5) Maturity and Weighted Average Life. The Incremental Equivalent Debt must not have a stated maturity date earlier than the latest stated maturity date of the initial Term Loan B (i.e., no earlier than March 28, 2032) and must not have a shorter weighted average life to maturity than the initial Term Loan B. This condition prevents the Borrower from incurring shorter-dated obligations that would effectively prime the initial Term Loan B lenders' claim on cash flows and collateral proceeds.

(6) Financial Maintenance Covenant Restriction. Any financial maintenance covenant applicable to the Incremental Equivalent Debt must not be more restrictive than the springing first lien net leverage maintenance covenant of 5.00x applicable to the initial Term Loan B (or, if more restrictive, must be added for the benefit of the initial Term Loan B lenders as well, on a "most favored nation" basis). This condition prevents an Incremental Equivalent Debt holder from obtaining a tighter financial covenant that could trigger cross-defaults to the Credit Agreement.

(7) Covenant and Term Restriction. The covenants, events of default, guarantees, collateral, and other terms of the Incremental Equivalent Debt documentation must not be more restrictive, taken as a whole, than those in the Credit Agreement, with a customary "inside maturity" exception (i.e., more restrictive terms are permitted for Incremental Equivalent Debt that matures within 91 days after the latest maturity of the existing term loans, on the rationale that such shorter-dated debt may need additional protections given its shorter time horizon).

Notably, the MFN clause described in Section V does not apply to Incremental Equivalent Debt. Because Incremental Equivalent Debt is incurred through separate documentation and is priced in a different market — whether the high-yield bond market, the direct lending market, or the private placement market — its pricing is determined independently of the Credit Agreement pricing, and the MFN spread ratchet mechanism is not applicable.

C. Key Observations and Negotiation Points

Strategic Importance. The Incremental Equivalent Debt framework provides Nexford with a critical additional dimension of financing flexibility. While in-agreement incremental facilities are limited to the bank loan market and are subject to the documentation conventions and consent mechanics of the Credit Agreement, Incremental Equivalent Debt allows the Borrower to access a much broader universe of capital sources. For example, Nexford could issue high-yield bonds in the public or Rule 144A market, secure a direct lending facility from a private credit fund, or enter into a bespoke note purchase agreement with institutional investors — all without amending the Credit Agreement and without requiring the consent of the existing Term Loan B lenders. This flexibility is particularly valuable in market environments where the bank loan market may be disrupted or where alternative capital sources offer more favorable pricing or terms. Given Granite Peak's history of active portfolio management and Nexford's acquisition-oriented growth strategy, the ability to access multiple debt markets through the Incremental Equivalent Debt framework is a meaningful source of strategic optionality.

Maturity Restriction. The current draft requires that all Incremental Equivalent Debt — whether pari passu secured, junior lien secured, or unsecured — must not mature earlier than March 28, 2032 (the maturity date of the initial Term Loan B). While this restriction is appropriate and market-standard for pari passu secured Incremental Equivalent Debt (where a shorter maturity could disrupt the equal-priority sharing arrangement), we believe the restriction is overly conservative for junior lien and unsecured Incremental Equivalent Debt. Creditors holding junior lien or unsecured obligations have a lower priority claim on the Borrower's assets, and a slightly earlier maturity date should be permissible without prejudicing the initial Term Loan B lenders. We recommend pushing for a maturity date restriction of no earlier than 91 days prior to the latest maturity date of the initial Term Loan B (i.e., no earlier than December 27, 2031) for junior lien and unsecured Incremental Equivalent Debt. This formulation is increasingly common in recent sponsor-backed transactions and provides the Borrower with additional flexibility to access the junior capital markets with a slightly shorter tenor if market conditions warrant. This item has been flagged as an open issue for the March 17 draft.

Eligible Lender / Secondary Trading Restriction. As noted above, the Credit Agreement requires that the initial purchasers or lenders of Incremental Equivalent Debt be eligible assignees (i.e., not disqualified lenders). However, the current draft is ambiguous as to whether this restriction applies to subsequent purchasers of Incremental Equivalent Debt on the secondary market. If Incremental Equivalent Debt takes the form of high-yield notes issued under an indenture or Rule 144A offering, the notes will trade freely in the secondary market among a wide range of institutional investors, and it would be impractical — and highly unusual — to impose disqualified lender restrictions on secondary trading. Secondary market liquidity is essential to the marketability and pricing of such notes, and any restriction on secondary transfers would significantly impair the Borrower's ability to achieve competitive pricing. We recommend that C&H clarify in the next mark-up that the eligible lender / disqualified lender restrictions apply only to the initial incurrence (i.e., the initial purchasers at the time of issuance) and do not apply to subsequent transfers or trades in the secondary market.

VII. Interaction with Existing Indenture Covenants

The analysis of incremental capacity under the Credit Agreement cannot be conducted in isolation from the covenants in Nexford's other outstanding debt instruments. Most significantly, the Indenture dated November 8, 2021 (the "Notes Indenture"), governing the $250,000,000 aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Existing Notes"), with Pinnacle Trust Company as trustee, contains incurrence-based covenants that separately limit the ability of Nexford and its Restricted Subsidiaries to incur additional indebtedness.

Based on our review memorandum dated February 14, 2025 (a copy of which was provided to you under separate cover), the Notes Indenture permits additional secured indebtedness subject to a separate first lien net leverage ratio test. That test is understood to be set at 4.75 to 1.00, based on our review of Section 4.09(b)(1) of the Notes Indenture and the related defined terms. Because the Credit Agreement's Ratio Incurrence Test is set at 4.50x — i.e., 25 basis points more restrictive than the Notes Indenture's 4.75x test — the Credit Agreement will be the binding constraint on the incurrence of additional first lien secured indebtedness in virtually all circumstances. However, there may be situations in which the two tests produce different results due to differences in the definitions of Consolidated EBITDA, Consolidated First Lien Debt, or Unrestricted Cash used in the respective instruments. We recommend that, prior to any incremental incurrence, both the Credit Agreement and the Notes Indenture capacity be calculated independently to confirm compliance with both sets of covenants.

In addition to the leverage-based test, the Notes Indenture contains a general indebtedness basket and a credit facility basket (understood to be $[TBD] million) that would need to be checked when incurring any incremental facility. The interplay between the Credit Agreement incremental baskets and the Notes Indenture incurrence baskets requires careful coordination. We understand that Kellner Brandt & Associates LLP (Patricia Voss, partner) is serving as sponsor's counsel and has primary responsibility for the Notes Indenture compliance analysis, and that Nexford's in-house legal and treasury team — David Engstrom, General Counsel, and Priya Mehta, Vice President, Treasury — is coordinating the internal compliance review. We recommend that C&H schedule a call with Kellner Brandt and the Nexford in-house team to align on the parallel compliance analysis before any post-closing incremental incurrence is contemplated.

Finally, the First Lien/Unsecured Intercreditor Agreement currently being negotiated between Crescent Harbor Bank, N.A. (as first lien collateral agent) and Pinnacle Trust Company (as trustee for the Existing Notes holders) addresses the priority of claims and enforcement rights as between the first lien creditors and the unsecured noteholders. The first draft of this intercreditor agreement was circulated by W&G on March 12, 2025, and C&H's marked draft is expected to be returned to W&G on March 19, 2025. While the intercreditor agreement should not impose additional limitations on the Borrower's ability to incur incremental debt (the incurrence capacity is governed by the Credit Agreement and the Notes Indenture, not the intercreditor agreement), any incremental first lien debt incurred after closing would need to be designated as "First Lien Obligations" under the intercreditor agreement. This designation is accomplished through a joinder mechanism, pursuant to which the representative for the holders of the incremental first lien debt (whether the Administrative Agent, in the case of in-agreement incremental facilities, or a new collateral agent, in the case of pari passu Incremental Equivalent Debt) executes a joinder to the intercreditor agreement. We discuss the importance of ensuring the administrative workability of this joinder mechanism in Section IX.B below.

VIII. Summary of Total Incremental Capacity

A. Estimated Incremental Capacity at Closing

The following table summarizes the estimated incremental borrowing capacity available to Nexford as of the anticipated Closing Date, based on the provisions of the Credit Agreement as currently drafted:

Important Notes:

(i) Incremental Equivalent Debt shares capacity with the above baskets. The incurrence of Incremental Equivalent Debt under either the Free-and-Clear Basket or the ratio-based basket reduces the available capacity under the applicable basket on a dollar-for-dollar basis. Incremental Equivalent Debt does not represent additional capacity beyond the amounts shown in the table above.

(ii) The Free-and-Clear Basket and the ratio-based basket may be used in combination for a single incurrence. For example, the Borrower could incur $500,000,000 of incremental debt by allocating $385,000,000 to the Free-and-Clear Basket and the remaining $115,000,000 to the ratio-based basket (subject to the Ratio Incurrence Test being satisfied with respect to the $115,000,000 allocated to that basket, after giving pro forma effect to the full $500,000,000 incurrence).

(iii) The Borrower retains the ability to reclassify amounts between baskets, subject to the conditions and limitations discussed in Sections III.C and IX.A.5 of this memorandum.

(iv) The "theoretical maximum" of approximately $817,500,000 overstates the practical combined capacity because utilization of the Free-and-Clear Basket increases leverage and reduces the remaining ratio-based capacity. The actual combined capacity at any given time will depend on the interaction between the baskets.

B. Practical Considerations

The incremental capacity figures presented above represent a snapshot as of the anticipated Closing Date. In practice, the actual available capacity will be dynamic, changing over time in response to several factors:

EBITDA Growth. Both the Grower Component of the Free-and-Clear Basket (100% of LTM Consolidated EBITDA) and the ratio-based capacity are directly influenced by the Borrower's EBITDA. As EBITDA grows — whether through organic revenue growth, margin expansion, cost reductions, or the contribution of acquired businesses — both baskets expand. Conversely, an EBITDA decline would reduce capacity under both baskets. According to the financial projections prepared by Stonebridge Advisory Group, LLC (the Borrower's financial advisor), Nexford's Adjusted EBITDA is projected to grow from $385,000,000 in the LTM period ended December 31, 2024 to approximately $425,000,000 in the fiscal year ending December 31, 2025 and $465,000,000 in the fiscal year ending December 31, 2026. If these projections are achieved, the Free-and-Clear Basket would grow to $425,000,000 and $465,000,000, respectively, and the ratio-based capacity would expand correspondingly.

Debt Repayment. The Term Loan B requires quarterly amortization payments of $3,500,000 per quarter, or $14,000,000 per annum (representing 1.00% annual amortization on the initial $1,400,000,000 principal amount). Each amortization payment reduces the outstanding first lien debt balance, which in turn reduces the numerator of the First Lien Net Leverage Ratio and increases the available ratio-based capacity. Over the seven-year tenor of the Term Loan B, aggregate scheduled amortization payments would total approximately $98,000,000 (subject to adjustment for any incremental facilities or prepayments).

Excess Cash Flow Sweeps. In addition to scheduled amortization, the Credit Agreement requires the Borrower to apply a percentage of annual Excess Cash Flow (as defined) to prepay the Term Loan B. The sweep percentage steps down based on the Borrower's first lien net leverage:

• 50% of Excess Cash Flow if first lien net leverage exceeds 4.25x

• 25% of Excess Cash Flow if first lien net leverage is between 4.25x and 3.50x (inclusive)

• 0% of Excess Cash Flow if first lien net

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
TO: Claudia Merritt, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP
FROM: Marcus Leung, Lead Associate, Banking & Finance, Calderwood & Harkness LLP Sophie Tremblay, Working Associate, Banking & Finance, Calderwood & Harkness LLP
DATE: March 13, 2025
RE: Nexford Industrial Holdings Inc. — $1,400,000,000 Senior Secured Term Loan B — Analysis of Incremental Facility Provisions and Capacity
Matter No.: 1005-00001
Client/Matter Code: IBL-NIH-2025-031
I. Executive Summary
The purpose of this memorandum is to analyze the incremental facility provisions contained in the third draft of the Credit Agreement (the "NIH Credit Agreement — Draft 3") expected to be circulated by Whitfield & Gage LLP ("W&G") on March 17, 2025. Our analysis is based on the second draft of the Credit Agreement circulated by W&G on March 5, 2025, updated to reflect the status of ongoing negotiations between the parties as of the date of this memorandum, March 13, 2025. The Credit Agreement governs the $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B" or the "Facility") among Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower"), the Guarantors party thereto from time to time, Crescent Harbor Bank, N.A. ("Crescent Harbor"), as Administrative Agent and Collateral Agent, and the Lenders from time to time party thereto.
The incremental facility provisions in the Credit Agreement are structured around two primary capacity prongs: (1) a fixed "free-and-clear" basket, set at the greater of $280,000,000 and 100% of LTM Consolidated EBITDA, which does not require pro forma financial covenant compliance at the time of incurrence; and (2) an uncapped ratio-based incurrence basket that permits unlimited incremental borrowings provided that, on a pro forma basis, the Borrower's first lien net leverage ratio does not exceed 4.50 to 1.00. In addition, the Credit Agreement permits the Borrower to incur incremental equivalent debt outside the four corners of the Credit Agreement — through separate credit agreements, note purchase agreements, or indentures — sharing the same capacity as the in-agreement incremental facilities.
Our summary conclusion is as follows: the incremental facility provisions as currently drafted provide substantial future borrowing flexibility to Nexford and its private equity sponsor, Granite Peak Capital Partners, LP ("Granite Peak"). At closing, the combined theoretical incremental capacity (free-and-clear basket plus ratio-based basket) is estimated at approximately $817,500,000, which represents a significant financing runway for bolt-on acquisitions, potential dividend recapitalizations, and other capital deployment strategies. However, several points remain open or warrant borrower-favorable revisions, as discussed in detail in Section IX of this memorandum. These include, among others, the inclusion of a "leverage ratio starter" provision in the ratio-based incurrence test, clarification of maturity restrictions for junior lien and unsecured incremental equivalent debt, and confirmation of reclassification rights between the two capacity baskets on a post-incurrence basis.
This memorandum should be read in conjunction with the Credit Agreement Issues List — Version 2.0, dated March 6, 2025, and the C&H Marked Second Draft of the Credit Agreement, which was returned to W&G on March 8, 2025, for the broader context of the ongoing negotiations regarding these and other provisions of the Credit Agreement.
II. Background and Context
A. Transaction Overview
Nexford Industrial Holdings Inc. is a Delaware corporation headquartered at 1400 Industrial Parkway, Schaumburg, Illinois 60173. Nexford operates as a diversified industrials and specialty manufacturing platform, serving customers across the aerospace, automotive, energy, and general industrial end-markets. For the twelve-month period ended December 31, 2024, Nexford reported revenue of approximately $2.1 billion and LTM Adjusted EBITDA of $385,000,000, reflecting both organic growth and the contribution of recent bolt-on acquisitions.
Nexford is a portfolio company of Granite Peak Capital Partners, LP, a private equity firm with approximately $14 billion of assets under management focused on middle-market industrials and business services investments. Granite Peak holds its equity interest in Nexford through Granite Peak NIH Holdings, LLC ("Holdings"), a Delaware limited liability company that serves as the direct parent of the Borrower and is expected to be a Guarantor under the Credit Agreement.
The $1,400,000,000 Term Loan B is being structured to accomplish the following purposes. First, the proceeds will refinance Nexford's existing first lien credit facilities, consisting of an $875,000,000 first lien term loan and a $190,000,000 revolving credit facility, both of which were incurred under the Credit Agreement dated June 14, 2019, as amended through the Fourth Amendment dated September 12, 2024, with Atlas Meridian Bank, N.A. as administrative agent (collectively, the "Existing Credit Facilities"). The Existing Credit Facilities will be repaid in full and terminated at closing. Second, after deducting transaction fees and expenses (estimated at approximately $[TBD] million, including arranger fees, upfront lender OID, and advisory fees), the remaining net proceeds of approximately $335,000,000 will be used to fund a dividend recapitalization to Granite Peak and its co-investors, returning capital in connection with the platform's strong performance and deleveraging since Granite Peak's initial acquisition.
Nexford's existing $250,000,000 aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Existing Notes") will remain outstanding and are not being refinanced as part of this transaction. Pinnacle Trust Company serves as trustee under the Indenture governing the Existing Notes, dated November 8, 2021. The continued existence of the Existing Notes is relevant to the incremental facility analysis because the Notes Indenture contains incurrence-based covenants that impose separate limitations on additional indebtedness, as discussed further in Section VII below.
The pro forma capital structure at closing is as follows:
Based on this capital structure and LTM Adjusted EBITDA of $385,000,000, the pro forma leverage metrics at closing are as follows:
•  Pro forma first lien net leverage: approximately 3.38x, calculated as ($1,400,000,000 − $100,000,000) ÷ $385,000,000 = 3.3766x, rounded to 3.38x.
•  Pro forma total net leverage: approximately 4.03x, calculated as ($1,400,000,000 + $250,000,000 − $100,000,000) ÷ $385,000,000 = 4.0260x, rounded to 4.03x.
Crescent Harbor Bank, N.A., located at 320 Federal Street, Boston, Massachusetts 02110, serves as sole lead left arranger, sole bookrunner, administrative agent, and collateral agent under the Credit Agreement. The joint lead arrangers are Ironwood Capital Markets, LLC and Northvane Securities, Inc., each of which is expected to hold a portion of the Term Loan B at closing before syndication to a broader group of institutional investors, including CLO vehicles and credit funds.
The interest rate on the Term Loan B is Term SOFR plus 400 basis points, subject to a SOFR floor of 0.75%. The facility was offered at an original issue discount of 99.50 (i.e., 50 basis points of OID). The stated maturity date of the Term Loan B is March 28, 2032, representing a seven-year tenor from the target closing date of March 28, 2025. Quarterly amortization payments of $3,500,000 (representing 1.00% per annum of the initial principal amount) are required, with the balance payable at maturity. The Credit Agreement also includes an excess cash flow sweep mechanism, with sweep percentages stepping down based on first lien net leverage levels, as discussed further in Section VIII.B below.
B. Importance of Incremental Provisions
Incremental facility provisions are among the most critical — and most heavily negotiated — features of any sponsor-backed leveraged credit facility. They represent the primary contractual mechanism by which a borrower can access additional debt capital within the framework of an existing credit agreement, without the need for a full amendment requiring the consent of all or a majority of existing lenders. For a private-equity-sponsored borrower like Nexford, the incremental provisions are essential to the execution of the sponsor's value creation strategy, which typically involves some combination of bolt-on acquisitions, capital expenditures, working capital investments, and potential further returns of capital to equity holders.
In the case of Nexford, the significance of the incremental provisions is underscored by the company's demonstrated acquisition-driven growth trajectory. Since Granite Peak's acquisition of the platform, Nexford has completed four bolt-on acquisitions, each financed in part through existing credit facility capacity:
(i) Clearfield Tool & Die, Inc. (2021) — a precision machining and tooling company that expanded Nexford's aerospace component capabilities;
(ii) Summit Industrial Fabrication Co. (2022) — a structural steel and custom fabrication business that broadened Nexford's energy infrastructure offerings;
(iii) Ridgepoint Specialty Coatings, LLC (2023) — a specialty coatings and surface treatment company that added higher-margin, value-added services to the platform; and
(iv) Lakeshore Precision Engineering, Inc. (2024) — a precision engineering and tight-tolerance manufacturing operation that further consolidated Nexford's position in the automotive supply chain.
Granite Peak's stated strategy contemplates continued bolt-on acquisitions, and the incremental provisions in the Credit Agreement will be the primary mechanism by which Nexford finances the debt component of future transactions. Additionally, the incremental provisions may be used to fund future dividend recapitalizations if the Borrower's financial performance and leverage profile support additional returns to equity holders.
It is also important to note that no new revolving credit facility is being established as part of this transaction. The existing $190,000,000 revolving credit facility under the Existing Credit Facilities is being terminated at closing, and no replacement revolver is being put in place. As a result, the incremental facility provisions serve the additional function of permitting Nexford to add a revolving credit facility post-closing if the need arises, whether to fund working capital, provide liquidity support, or backstop letters of credit. The Credit Agreement expressly permits incremental revolving credit commitments under the free-and-clear basket, and this is an important feature that we have confirmed in our review of the current draft.
III. The Free-and-Clear Basket (Fixed Dollar / EBITDA-Based Basket)
A. Structure.  Section 2.14(a) of the Credit Agreement provides that the Borrower may request, from time to time after the Closing Date, one or more increases to the existing Term Loan B commitments or additional tranches of term loans, and/or one or more new revolving credit commitments (each, an "Incremental Facility"), in an aggregate principal amount not to exceed (without duplication) the greater of:
(x) $280,000,000 (the "Fixed Dollar Component"); and
(y) an amount equal to 100% of LTM Consolidated EBITDA (as defined in the Credit Agreement, and as adjusted for permitted add-backs) calculated as of the last day of the most recently ended test period for which financial statements have been delivered or were required to be delivered pursuant to Section 6.01 (the "Grower Component"),
in each case, minus the aggregate principal amount of Incremental Equivalent Debt previously incurred in reliance on this basket that remains outstanding (collectively, the "Free-and-Clear Basket").
No pro forma financial covenant compliance is required to draw on the Free-and-Clear Basket — the capacity is available solely upon satisfaction of certain non-financial conditions (described in Section III.B below). This is the origin of the "free and clear" designation: the basket is "free" from any financial test and "clear" of any leverage constraint.
As of the anticipated Closing Date (March 28, 2025), the effective capacity under the Free-and-Clear Basket is $385,000,000, representing the greater of (x) $280,000,000 and (y) 100% of LTM Consolidated EBITDA of $385,000,000 (based on the twelve-month period ended December 31, 2024). The Fixed Dollar Component of $280,000,000 represents approximately 20.0% of the initial Term Loan B facility size ($280,000,000 ÷ $1,400,000,000 = 20.0%) and approximately 72.7% of LTM Adjusted EBITDA ($280,000,000 ÷ $385,000,000 = 72.73%). While the Fixed Dollar Component establishes a floor for the Free-and-Clear Basket, it is the Grower Component that will likely govern at closing and, assuming continued EBITDA growth, for the foreseeable future.
The inclusion of the Grower Component is a borrower-favorable feature that ensures the Free-and-Clear Basket expands in lockstep with Nexford's earnings growth. As the company achieves higher EBITDA — whether through organic growth, operational improvements, or completed acquisitions (with acquired EBITDA added on a pro forma basis) — the Free-and-Clear Basket increases dollar-for-dollar with any EBITDA improvement. This creates a dynamic, self-adjusting capacity that rewards strong performance with enhanced financial flexibility.
B. Conditions to Incurrence Under the Free-and-Clear Basket
Although the Free-and-Clear Basket does not require pro forma compliance with any financial ratio, the Credit Agreement imposes the following conditions on any incurrence under this basket:
(1) No Default or Event of Default. No Event of Default or Default shall exist at the time of the incurrence or would result therefrom, both immediately before and immediately after giving effect to the incurrence and the application of proceeds thereof. This is a standard condition that prevents the Borrower from layering on additional debt when the credit facility is already in a state of distress or potential distress.
(2) Representations and Warranties. The representations and warranties of the Borrower and each Guarantor set forth in the Credit Agreement and each other Loan Document shall be true and correct in all material respects (or, in the case of representations and warranties qualified by "materiality" or "Material Adverse Effect," in all respects) as of the date of such incurrence. Importantly, this condition is subject to the "SunGard" or "certain funds" limited conditionality provisions set forth in Section 1.10 of the Credit Agreement, which provide that if the incremental facility is being incurred in connection with a Limited Condition Acquisition (as defined), the representations and warranties condition is limited to the "Specified Representations" — a narrower set of representations (including organization, authorization, no conflicts, and solvency) that are customarily tested in acquisition financings to provide certainty of funding.
(3) Eligible Assignees. Each incremental lender must qualify as an "eligible assignee" under the Credit Agreement — that is, it must not be a "disqualified lender" as defined in Section 1.01. The disqualified lender list, which is maintained by the Administrative Agent and was established by the Borrower (with input from Granite Peak) at the time of initial syndication, includes competitors of Nexford, vulture and distressed-debt funds identified by the Borrower, and their respective affiliates. This condition ensures that the Borrower retains control over the identity of its incremental lenders, consistent with the same protections applicable to assignments under Section 10.06.
(4) Documentation Requirements. The incremental facility must be documented in one of two ways: (i) for incremental term loans or revolving credit commitments to be incurred under the Credit Agreement, through an amendment to the Credit Agreement (an "Incremental Facility Amendment") executed by the Borrower, the Administrative Agent, and the incremental lenders (but not requiring the consent of any existing lenders); or (ii) for Incremental Equivalent Debt (discussed in Section VI), through separate documentation (such as a note purchase agreement or indenture) in form and substance reasonably satisfactory to the Administrative Agent.
C. Key Observations and Negotiation Points
We have identified the following observations and negotiation points with respect to the Free-and-Clear Basket:
Grower Component. As noted above, the floating prong of the Free-and-Clear Basket (100% of LTM Consolidated EBITDA) operates as a "grower" that effectively transforms the free-and-clear basket from a fixed dollar amount into a dynamic, EBITDA-linked capacity. This is a borrower-favorable feature and is consistent with prevailing market practice for sponsor-backed Term Loan B transactions in the current lending environment. We note that the 100% of EBITDA formulation represents the more aggressive end of the market range; some transactions set the grower at 75% or even 50% of EBITDA, though the 100% level has become increasingly standard in recent years, particularly for transactions arranged by bulge-bracket and large regional banks such as Crescent Harbor. We do not anticipate significant pushback from the syndicate on this point.
Reclassification and Reallocation. The current draft of the Credit Agreement permits the Borrower to reclassify amounts from the Free-and-Clear Basket to the ratio-based basket (and vice versa) at the time of incurrence. This reclassification right is a critical feature that provides the Borrower with maximum flexibility in structuring incremental borrowings. In practice, the reclassification mechanism operates as follows: if the Borrower initially incurs $200,000,000 of incremental term loans under the Free-and-Clear Basket, the Borrower may subsequently reclassify (or "redesignate") that $200,000,000 as having been incurred under the ratio-based basket, thereby restoring $200,000,000 of Free-and-Clear Basket capacity — provided that, at the time of such redesignation, the Borrower can demonstrate pro forma compliance with the 4.50x first lien net leverage ratio incurrence test (giving effect to the $200,000,000 as ratio-based debt). This "freed up" Free-and-Clear Basket capacity can then be used for subsequent incremental borrowings without any financial test. We address below in Section IX.A.5 our recommendation that the reclassification right be expanded to permit redesignation not only at the time of incurrence but also at any subsequent time after incurrence.
No Revolving Facility at Closing. As discussed in Section II.B above, no revolving credit facility is being established at closing. The Free-and-Clear Basket therefore serves as the expected avenue for adding a revolving credit facility post-closing. The current draft of the Credit Agreement expressly permits the incurrence of incremental revolving credit commitments under the Free-and-Clear Basket, which is essential and appropriate. We have confirmed that the relevant language in Section 2.14(a) refers to both "additional term loan commitments" and "revolving credit commitments," and that the definition of "Incremental Facility" is broad enough to encompass either type of commitment. No further revision is needed on this point.
EBITDA Measurement Period. We recommend confirming that the "most recent test period" used for measuring LTM Consolidated EBITDA for purposes of the Grower Component is defined as the four consecutive fiscal quarters ending on the last day of the most recently completed fiscal quarter for which financial statements have been delivered (or were required to be delivered) pursuant to Section 6.01 of the Credit Agreement. This definition ensures that the Borrower is not penalized by using stale financial data if more recent quarterly results have not yet been finalized. The draft language in the current version of the Credit Agreement is acceptable in this regard, and we have confirmed that pro forma adjustments for acquisitions completed and dispositions consummated during or after the relevant test period are permitted under the definition of Consolidated EBITDA. No further revision is recommended on this specific point.
IV. The Ratio-Based Incurrence Basket
A. Structure.  Section 2.14(a)(ii) of the Credit Agreement provides that, in addition to the Free-and-Clear Basket described in Section III above, the Borrower may incur unlimited incremental term loans and/or revolving credit commitments, subject to the condition that, after giving pro forma effect to the incurrence of such incremental debt (and the application of proceeds thereof, including the consummation of any acquisition or other investment being financed with such proceeds), the Borrower's pro forma first lien net leverage ratio (the "First Lien Net Leverage Ratio") does not exceed 4.50 to 1.00 (the "Ratio Incurrence Test").
This is a "ratio" basket in the truest sense — there is no dollar cap on the amount of incremental debt that may be incurred thereunder. The sole constraint is the leverage test itself. If the Borrower's pro forma First Lien Net Leverage Ratio, after giving effect to the incremental borrowing and the application of proceeds, does not exceed 4.50x, the incurrence is permitted regardless of the dollar amount. This structure provides the Borrower with theoretically uncapped capacity, limited only by its ability to demonstrate compliance with the leverage test at the time of each incurrence.
The First Lien Net Leverage Ratio is defined in Section 1.01 of the Credit Agreement as:
(Consolidated First Lien Debt minus Unrestricted Cash and Cash Equivalents) ÷ Consolidated EBITDA for the Most Recently Ended Test Period
where "Consolidated First Lien Debt" includes all indebtedness secured by a first-priority lien on the Collateral (including the Term Loan B and any incremental first lien facilities), "Unrestricted Cash and Cash Equivalents" means cash and cash equivalents of the Borrower and its Restricted Subsidiaries that are not subject to any lien (other than liens in favor of the Collateral Agent) or contractual restriction on use, and "Most Recently Ended Test Period" means the four consecutive fiscal quarters most recently ended for which financial statements have been delivered or were required to be delivered under Section 6.01.
The 4.50x first lien net leverage threshold is positioned 112 basis points above the pro forma first lien net leverage ratio at closing of 3.38x. This provides meaningful "day one" headroom for incremental borrowings. Equally significant, the threshold is set 50 basis points below the springing financial maintenance covenant level of 5.00x first lien net leverage (applicable only when the revolving credit facility, once established, is drawn in excess of 35% of commitments), ensuring that incurrence of incremental debt under this basket will not, by itself, cause a financial covenant default.
B. Calculation of Available Ratio Capacity at Closing
To illustrate the magnitude of the incremental capacity available under the ratio-based basket at closing, we set forth the following calculation:
Inputs:
•  Pro forma first lien net leverage at closing: 3.38x (rounded; precise calculation: ($1,400,000,000 − $100,000,000) ÷ $385,000,000 = 3.3766x)
•  Maximum permitted first lien net leverage under the Ratio Incurrence Test: 4.50x
•  Leverage cushion: 4.50x − 3.38x = 1.12x
•  Dollar equivalent of leverage cushion: 1.12 × $385,000,000 = approximately $431,200,000
Iterative Calculation:
The simple cushion calculation above slightly overstates the available capacity because it does not account for the fact that the incremental debt itself increases the numerator of the leverage ratio. To solve for the precise capacity, we must set up the following equation, letting $X represent the maximum amount of incremental first lien debt that may be incurred:
($1,300,000,000 + $X) ÷ $385,000,000 ≤ 4.50
where $1,300,000,000 represents the net first lien debt at closing ($1,400,000,000 Term Loan B minus $100,000,000 unrestricted cash). Solving for $X:
$X ≤ ($385,000,000 × 4.50) − $1,300,000,000
$X ≤ $1,732,500,000 − $1,300,000,000
$X ≤ $432,500,000
Accordingly, at closing, the Borrower could incur up to approximately $432,500,000 of additional first lien debt under the ratio-based basket alone, assuming no change in EBITDA or cash balances other than the incremental borrowing itself. We note that if the proceeds of the incremental borrowing were deposited as unrestricted cash (for example, pending the closing of an acquisition), the netting effect would increase the available capacity further, though this benefit would be temporary.
Combined Capacity (Free-and-Clear + Ratio):
At closing, the Borrower's combined theoretical incremental capacity is:
•  Free-and-Clear Basket: $385,000,000 (100% of LTM EBITDA, which exceeds the $280,000,000 fixed component)
•  Ratio-Based Basket: approximately $432,500,000
•  Total theoretical maximum: approximately $817,500,000
We emphasize the word "theoretical" because, in practice, utilization of the Free-and-Clear Basket would itself increase the Borrower's first lien net leverage ratio, thereby reducing the remaining capacity under the ratio-based basket. For example, if the Borrower incurred $385,000,000 under the Free-and-Clear Basket, its pro forma first lien net leverage would increase to approximately 4.38x (($1,300,000,000 + $385,000,000) ÷ $385,000,000 = 4.3766x), leaving only approximately $47,500,000 of residual ratio-based capacity. The interplay between the two baskets means that the total effective capacity is less than the simple sum of the two individual baskets, and the optimal structuring of any incremental borrowing will depend on the specific facts and circumstances at the time.
C. Key Observations and Negotiation Points
We have identified the following observations and negotiation points with respect to the ratio-based incurrence basket:
Test Level Relative to Closing Leverage and Financial Covenant. The 4.50x Ratio Incurrence Test level occupies what we view as an appropriate position in the credit structure: it provides 112 basis points of headroom above closing leverage (3.38x), giving the Borrower meaningful room to incur additional debt without requiring earnings growth, while remaining 50 basis points below the springing financial maintenance covenant level of 5.00x. This 50-basis-point buffer is significant because it means that even if the Borrower maximizes its ratio-based incurrence capacity, it would still have a cushion before triggering a financial covenant violation — assuming EBITDA and cash balances remain stable. This calibration is consistent with market standards for sponsor-backed Term Loan B transactions in the current environment and is in line with the terms of the Crescent Harbor commitment letter dated February 14, 2025.
Pro Forma Adjustments and EBITDA Add-Backs. The pro forma leverage calculation under the Ratio Incurrence Test incorporates the same Consolidated EBITDA definition used throughout the Credit Agreement, which includes customary "run-rate" cost savings, operating expense reductions, and synergies add-backs that are projected to be achieved within 24 months of the relevant action giving rise to such savings or synergies. These add-backs are subject to an aggregate cap of $28,000,000, consistent with the broader Adjusted EBITDA definition, and are comprised of the following components:
•  Acquisition-related costs (including transaction advisory fees, legal fees, and due diligence expenses): $12,000,000
•  Non-recurring restructuring charges (including facility consolidation, workforce reduction, and severance costs): $8,500,000
•  Sponsor management fees (annual advisory and monitoring fees payable to Granite Peak): $4,500,000
•  Integration costs (including systems integration, rebranding, and supply chain optimization): $3,000,000
The inclusion of these add-backs effectively increases the denominator of the leverage ratio, thereby expanding the Borrower's ratio-based capacity. This is an important feature to preserve in subsequent drafts, and we do not anticipate material pushback from W&G or the syndicate on the existing add-back formulation.
Testing Methodology — "Most Favorable" Test Period. Under the current draft, if the incremental debt is being incurred in connection with an acquisition or other permitted investment, the Borrower may elect to test compliance with the Ratio Incurrence Test on a pro forma basis giving effect to the acquisition and the related financing. However, the draft is currently silent on whether the Borrower may elect which test period to use if financial statements for a more recently ended fiscal quarter have been delivered (or were required to be delivered) but reflect a less favorable EBITDA profile than the prior quarter's financials. In a declining-EBITDA environment, this flexibility is critical: the Borrower should be permitted to elect the most favorable test period among those for which financial statements are available (or were required to be available), rather than being forced to use the most recent period. We have flagged this issue in the Credit Agreement Issues List v2.0 and recommend that C&H include an express "most favorable test period" election right in the next mark-up.
Netting of Cash. The First Lien Net Leverage Ratio definition uses a net leverage construct — that is, Unrestricted Cash and Cash Equivalents are deducted from Consolidated First Lien Debt in the numerator. At closing, $100,000,000 of cash is netted against the $1,400,000,000 Term Loan B balance, producing a net first lien debt figure of $1,300,000,000. This netting convention is important in the context of incremental borrowings because, if the proceeds of an incremental facility are temporarily held as cash (for example, pending the closing of an acquisition), the incremental debt added to the numerator is partially or fully offset by the corresponding increase in the cash balance. The draft should confirm that newly borrowed proceeds sitting in the Borrower's or a Restricted Subsidiary's accounts qualify as "Unrestricted Cash and Cash Equivalents" for netting purposes, and we have confirmed that the current definition is sufficiently broad to accommodate this treatment.
Leverage Ratio Starter Provision. We recommend that C&H push for the inclusion of a "Leverage Ratio Starter" provision in the next mark-up. Under this provision, the Ratio Incurrence Test would be deemed satisfied if the Borrower's pro forma First Lien Net Leverage Ratio at the time of incurrence does not exceed the greater of (a) 4.50 to 1.00 and (b) the pro forma First Lien Net Leverage Ratio as of the Closing Date (i.e., 3.38x). As a practical matter, this provision would have no effect so long as the Borrower's pro forma leverage at the time of incurrence is at or below 4.50x. However, if there were a leveraging transaction or a decline in EBITDA that pushed pro forma leverage above 4.50x, the Leverage Ratio Starter would ensure that the Borrower could still incur incremental debt up to the closing date leverage level. This provision is increasingly common in recent sponsor-backed transactions and provides an important safety valve for the Borrower's financing flexibility. The current W&G draft does not include a Leverage Ratio Starter, and we have flagged this as an open item in the Credit Agreement Issues List v2.0 for resolution in the March 17 draft.
V. The Most Favored Nation (MFN) Protection
A. Overview.  Section 2.14(d) of the Credit Agreement contains a most favored nation ("MFN") clause that protects the existing Term Loan B lenders against being economically disadvantaged by the pricing of any incremental term loans incurred within the first twelve months after the Closing Date (i.e., through March 28, 2026). The MFN provision operates as a "spread ratchet" mechanism: if any incremental term loan issued during the MFN protection period carries an effective yield that exceeds the effective yield on the initial Term Loan B by more than a specified threshold, the interest rate spread on the initial Term Loan B is automatically increased to the level that is equal to the incremental term loan's effective yield minus the threshold.
Specifically, the MFN clause in the current draft provides as follows: if the effective yield (calculated as described below) applicable to any incremental term loan incurred during the first twelve months after the Closing Date exceeds the effective yield on the initial Term Loan B by more than 50 basis points (the "MFN Threshold"), the applicable margin on the initial Term Loan B shall be increased by the amount necessary to cause the effective yield on the initial Term Loan B to equal the effective yield on such incremental term loan minus 50 basis points.
For purposes of this provision, "effective yield" is defined to include:
(i) the applicable margin (interest rate spread over Term SOFR);
(ii) any original issue discount ("OID") or upfront fees payable to the lenders, in each case amortized over the shorter of (a) the expected weighted average life of the applicable term loan and (b) four years from the date of incurrence; and
(iii) the benefit of any SOFR floor differential — that is, if the incremental term loan has a higher SOFR floor than the initial Term Loan B, the difference is treated as additional effective yield.
The initial Term Loan B bears interest at Term SOFR + 400 basis points, with a SOFR floor of 0.75%, and was issued at an original issue discount of 99.50 (i.e., 50 basis points of OID). Amortizing the 50 basis points of OID over a four-year assumed life produces an annualized yield increment of approximately 12.5 basis points per annum. Accordingly, the effective yield on the initial Term Loan B is approximately Term SOFR + 412.5 basis points (400 bps margin + 12.5 bps amortized OID), plus the benefit of the 0.75% SOFR floor to the extent that Term SOFR trades below 0.75% at the relevant time.
Applying the 50 basis point MFN Threshold, the initial Term Loan B spread would ratchet up only if an incremental term loan's effective yield exceeds approximately Term SOFR + 462.5 basis points (inclusive of OID, upfront fees, and any SOFR floor differential). Any incremental term loan priced at or below this level would not trigger the MFN ratchet.
B. Scope and Exceptions
The MFN protection in the Credit Agreement applies exclusively to incremental term loans — it does not extend to revolving credit commitments added as incremental facilities, which is consistent with market convention. Revolving credit facilities inherently carry a different pricing structure (including commitment fees on undrawn amounts, participation fees on letter of credit exposure, and different spread levels reflecting the shorter-duration, revolving nature of the commitment) and are therefore appropriately excluded from the MFN analysis.
In addition to the revolving credit carve-out, the current draft includes the following customary exceptions to the MFN clause, under which incremental term loans may be priced at any level without triggering a spread ratchet on the initial Term Loan B:
(i) Long-Dated Exception. Incremental term loans with a stated maturity date that is at least two years beyond the maturity of the initial Term Loan B (i.e., maturing on or after March 28, 2034) are excluded from the MFN protection. The rationale is that the longer maturity represents a fundamentally different risk profile and credit duration, and incremental lenders providing such longer-dated capital are entitled to compensation for the additional time risk without that pricing flowing back to the shorter-dated initial Term Loan B lenders.
(ii) Acquisition-Specific Exception. Incremental term loans incurred to finance a specific acquisition, where the aggregate principal amount of such incremental term loans does not exceed the amount reasonably necessary to consummate such acquisition (including the payment of related fees, premiums, expenses, and the refinancing of any existing target debt), and where such incremental term loans have a stated maturity date that is at least one year beyond the maturity of the initial Term Loan B (i.e., maturing on or after March 28, 2033), are excluded from the MFN protection. This exception recognizes that acquisition-linked financing often carries different pricing dynamics driven by the specific credit profile of the combined entity and the urgency of execution timing.
(iii) Incremental Equivalent Debt Exception. Incremental Equivalent Debt (discussed in Section VI below), which is incurred outside the Credit Agreement through separate documentation, is not subject to the MFN clause. Because Incremental Equivalent Debt is priced in a separate instrument (whether a note purchase agreement, indenture, or separate credit agreement), the pricing is determined by a different market and investor base, and the MFN concept does not apply.
C. Key Observations and Negotiation Points
12-Month Sunset. The MFN protection has a 12-month sunset period, expiring on March 28, 2026. After that date, the Borrower is free to price any incremental term loan at any level without concern that the spread on the initial Term Loan B will ratchet upward. The 12-month sunset is market-standard for broadly syndicated Term Loan B transactions and was specified in the Crescent Harbor commitment letter dated February 14, 2025. A shorter sunset period (e.g., 6 months) would be more borrower-favorable, but we believe the 12-month period is appropriate and unlikely to generate pushback from the syndicate. Conversely, we should be alert to any attempt by W&G in the next round of negotiations to extend the sunset period to 18 or 24 months, which would be atypical and lender-favorable; we would push back firmly against any such extension.
50 Basis Point Threshold. The MFN Threshold of 50 basis points sits at the more borrower-favorable end of the current market spectrum. Market practice in 2024–2025 broadly syndicated loan transactions has ranged from 0 basis points (a "full MFN," where any pricing differential triggers a ratchet) to 75 basis points, with 50 basis points emerging as the most common level in recent sponsor-backed deals. We note that a lower threshold (e.g., 25 basis points) would be more protective of the existing lenders, while a higher threshold (e.g., 75 basis points) would provide the Borrower with greater pricing flexibility on incremental issuances. The 50 basis point level is consistent with the commitment letter and should be acceptable to Crescent Harbor's syndicate investors, which are expected to include CLO vehicles such as Ridgeline Asset Management, LP, Cascadia Loan Fund III, LP, and institutional credit funds such as Bluewater Fixed Income Fund, LP and Halcyon Credit Partners, LLC. We do not recommend seeking a wider threshold at this time, as it could complicate syndication.
Effective Yield Definition. The definition of "effective yield" in the MFN clause is a critically important mechanic, as it determines the baseline against which the MFN threshold is measured. The current draft's definition, which captures the applicable margin, OID/upfront fees (amortized over the shorter of four years and the weighted average life), and any SOFR floor differential, is comprehensive and market-standard. We have reviewed the definition and confirmed that it does not contain any gaps or loopholes that would allow the Borrower to structure around the MFN protection (for example, by paying incremental lenders through mechanisms not captured by the effective yield definition). The definition is acceptable in its current form.
Interaction with the Free-and-Clear Basket. The MFN protection applies to all incremental term loans incurred during the 12-month protection period, regardless of whether the incurrence is made under the Free-and-Clear Basket or the ratio-based basket. This is the correct market approach: the MFN protection is a pricing protection for the initial Term Loan B lenders, and the capacity basket under which the incremental loan is incurred is relevant only to the quantum of the permitted borrowing, not to the applicable pricing protections. The current draft correctly reflects this principle, and no revision is needed.
Overall Assessment. The MFN provisions in the current draft are generally acceptable and consistent with the terms of the Crescent Harbor commitment letter. We do not recommend any further revisions to the MFN clause at this time. However, we should monitor subsequent drafts from W&G closely to ensure that the exceptions to the MFN clause are not narrowed (for example, by removing the acquisition-specific exception or shortening the "long-dated" carve-out from two years to one year beyond the initial maturity) and that the 12-month sunset period is not shortened or extended in a manner inconsistent with the commitment letter terms.
VI. Incremental Equivalent Debt
A. Structure.  Section 2.14(b) of the Credit Agreement provides a parallel pathway for the Borrower to incur additional debt outside the four corners of the Credit Agreement itself, through the issuance of what the agreement terms "Incremental Equivalent Debt." Incremental Equivalent Debt encompasses pari passu secured debt, junior lien secured debt, or unsecured debt that is incurred through separate documentation — such as a separate credit agreement with a direct lending fund, a note purchase agreement with institutional investors, or an indenture for high-yield bonds — rather than through an amendment to the Credit Agreement.
The Incremental Equivalent Debt capacity shares the same baskets as the in-agreement incremental facilities described in Sections III and IV above. That is, Incremental Equivalent Debt may be incurred under either the Free-and-Clear Basket (up to the greater of $280,000,000 and 100% of LTM EBITDA, without a financial test) or the ratio-based basket (unlimited, subject to the 4.50x first lien net leverage Ratio Incurrence Test), and the outstanding amount of Incremental Equivalent Debt reduces the available capacity under the applicable basket dollar-for-dollar. Incremental Equivalent Debt does not represent a separate, additional source of capacity beyond the in-agreement incremental facilities; it is simply an alternative mechanism for accessing the same capacity through different documentation and capital markets channels.
Importantly, the Credit Agreement addresses the intercreditor implications of Incremental Equivalent Debt as follows:
•  Pari Passu First Lien Incremental Equivalent Debt. If the Incremental Equivalent Debt is secured on a pari passu (equal priority) basis with the Term Loan B, it must be subject to the terms of a First Lien Intercreditor Agreement (or a substantially similar intercreditor arrangement) entered into between Crescent Harbor Bank, N.A., as existing Collateral Agent, and the collateral agent or representative for the holders of such pari passu debt. The First Lien Intercreditor Agreement will govern, among other things, the sharing of collateral proceeds, the exercise of remedies, the release of collateral and guarantees, and DIP financing and adequate protection rights in a bankruptcy proceeding.
•  Junior Lien Incremental Equivalent Debt. If the Incremental Equivalent Debt is secured on a junior (second priority) lien basis, it must be subject to a customary First Lien/Second Lien Intercreditor Agreement, establishing the priority of the first lien obligations over the junior lien obligations and imposing standstill and other subordination protections for the benefit of the first lien lenders.
•  Unsecured Incremental Equivalent Debt. Unsecured Incremental Equivalent Debt does not require an intercreditor agreement, though its terms must comply with the conditions described in Section VI.B below.
The Credit Agreement includes a standing authorization for the Administrative Agent to execute and deliver any such intercreditor agreements (or amendments or supplements to existing intercreditor agreements, including joinder agreements adding additional first lien obligations) on behalf of the lenders, without requiring the individual consent of any lender. This "pre-authorization" provision is essential to the practical functionality of the Incremental Equivalent Debt framework, as it eliminates the need for the Borrower to solicit lender-by-lender consent each time an intercreditor arrangement must be executed in connection with an incurrence of Incremental Equivalent Debt.
B. Conditions.  The incurrence of Incremental Equivalent Debt is subject to the following conditions, which mirror and supplement the conditions applicable to in-agreement incremental facilities:
(1) Basket Compliance. The Incremental Equivalent Debt must be incurred in reliance on, and in compliance with, either the Free-and-Clear Basket (Section 2.14(a)(i)) or the ratio-based basket (Section 2.14(a)(ii)), and the outstanding amount of such Incremental Equivalent Debt reduces the available capacity under the applicable basket.
(2) No Default or Event of Default. No Event of Default or Default shall exist at the time of incurrence or result therefrom.
(3) Representations and Warranties. The representations and warranties must be true and correct in all material respects (subject to the same limited conditionality provisions applicable to in-agreement incremental facilities).
(4) Eligible Lenders. The initial purchasers or lenders of the Incremental Equivalent Debt must be eligible assignees (i.e., not disqualified lenders) under the Credit Agreement. As discussed in Section VI.C below, the applicability of this restriction to secondary market purchasers of Incremental Equivalent Debt is ambiguous under the current draft.
(5) Maturity and Weighted Average Life. The Incremental Equivalent Debt must not have a stated maturity date earlier than the latest stated maturity date of the initial Term Loan B (i.e., no earlier than March 28, 2032) and must not have a shorter weighted average life to maturity than the initial Term Loan B. This condition prevents the Borrower from incurring shorter-dated obligations that would effectively prime the initial Term Loan B lenders' claim on cash flows and collateral proceeds.
(6) Financial Maintenance Covenant Restriction. Any financial maintenance covenant applicable to the Incremental Equivalent Debt must not be more restrictive than the springing first lien net leverage maintenance covenant of 5.00x applicable to the initial Term Loan B (or, if more restrictive, must be added for the benefit of the initial Term Loan B lenders as well, on a "most favored nation" basis). This condition prevents an Incremental Equivalent Debt holder from obtaining a tighter financial covenant that could trigger cross-defaults to the Credit Agreement.
(7) Covenant and Term Restriction. The covenants, events of default, guarantees, collateral, and other terms of the Incremental Equivalent Debt documentation must not be more restrictive, taken as a whole, than those in the Credit Agreement, with a customary "inside maturity" exception (i.e., more restrictive terms are permitted for Incremental Equivalent Debt that matures within 91 days after the latest maturity of the existing term loans, on the rationale that such shorter-dated debt may need additional protections given its shorter time horizon).
Notably, the MFN clause described in Section V does not apply to Incremental Equivalent Debt. Because Incremental Equivalent Debt is incurred through separate documentation and is priced in a different market — whether the high-yield bond market, the direct lending market, or the private placement market — its pricing is determined independently of the Credit Agreement pricing, and the MFN spread ratchet mechanism is not applicable.
C. Key Observations and Negotiation Points
Strategic Importance. The Incremental Equivalent Debt framework provides Nexford with a critical additional dimension of financing flexibility. While in-agreement incremental facilities are limited to the bank loan market and are subject to the documentation conventions and consent mechanics of the Credit Agreement, Incremental Equivalent Debt allows the Borrower to access a much broader universe of capital sources. For example, Nexford could issue high-yield bonds in the public or Rule 144A market, secure a direct lending facility from a private credit fund, or enter into a bespoke note purchase agreement with institutional investors — all without amending the Credit Agreement and without requiring the consent of the existing Term Loan B lenders. This flexibility is particularly valuable in market environments where the bank loan market may be disrupted or where alternative capital sources offer more favorable pricing or terms. Given Granite Peak's history of active portfolio management and Nexford's acquisition-oriented growth strategy, the ability to access multiple debt markets through the Incremental Equivalent Debt framework is a meaningful source of strategic optionality.
Maturity Restriction. The current draft requires that all Incremental Equivalent Debt — whether pari passu secured, junior lien secured, or unsecured — must not mature earlier than March 28, 2032 (the maturity date of the initial Term Loan B). While this restriction is appropriate and market-standard for pari passu secured Incremental Equivalent Debt (where a shorter maturity could disrupt the equal-priority sharing arrangement), we believe the restriction is overly conservative for junior lien and unsecured Incremental Equivalent Debt. Creditors holding junior lien or unsecured obligations have a lower priority claim on the Borrower's assets, and a slightly earlier maturity date should be permissible without prejudicing the initial Term Loan B lenders. We recommend pushing for a maturity date restriction of no earlier than 91 days prior to the latest maturity date of the initial Term Loan B (i.e., no earlier than December 27, 2031) for junior lien and unsecured Incremental Equivalent Debt. This formulation is increasingly common in recent sponsor-backed transactions and provides the Borrower with additional flexibility to access the junior capital markets with a slightly shorter tenor if market conditions warrant. This item has been flagged as an open issue for the March 17 draft.
Eligible Lender / Secondary Trading Restriction. As noted above, the Credit Agreement requires that the initial purchasers or lenders of Incremental Equivalent Debt be eligible assignees (i.e., not disqualified lenders). However, the current draft is ambiguous as to whether this restriction applies to subsequent purchasers of Incremental Equivalent Debt on the secondary market. If Incremental Equivalent Debt takes the form of high-yield notes issued under an indenture or Rule 144A offering, the notes will trade freely in the secondary market among a wide range of institutional investors, and it would be impractical — and highly unusual — to impose disqualified lender restrictions on secondary trading. Secondary market liquidity is essential to the marketability and pricing of such notes, and any restriction on secondary transfers would significantly impair the Borrower's ability to achieve competitive pricing. We recommend that C&H clarify in the next mark-up that the eligible lender / disqualified lender restrictions apply only to the initial incurrence (i.e., the initial purchasers at the time of issuance) and do not apply to subsequent transfers or trades in the secondary market.
VII. Interaction with Existing Indenture Covenants
The analysis of incremental capacity under the Credit Agreement cannot be conducted in isolation from the covenants in Nexford's other outstanding debt instruments. Most significantly, the Indenture dated November 8, 2021 (the "Notes Indenture"), governing the $250,000,000 aggregate principal amount of 7.250% Senior Unsecured Notes due 2028 (the "Existing Notes"), with Pinnacle Trust Company as trustee, contains incurrence-based covenants that separately limit the ability of Nexford and its Restricted Subsidiaries to incur additional indebtedness.
Based on our review memorandum dated February 14, 2025 (a copy of which was provided to you under separate cover), the Notes Indenture permits additional secured indebtedness subject to a separate first lien net leverage ratio test. That test is understood to be set at 4.75 to 1.00, based on our review of Section 4.09(b)(1) of the Notes Indenture and the related defined terms. Because the Credit Agreement's Ratio Incurrence Test is set at 4.50x — i.e., 25 basis points more restrictive than the Notes Indenture's 4.75x test — the Credit Agreement will be the binding constraint on the incurrence of additional first lien secured indebtedness in virtually all circumstances. However, there may be situations in which the two tests produce different results due to differences in the definitions of Consolidated EBITDA, Consolidated First Lien Debt, or Unrestricted Cash used in the respective instruments. We recommend that, prior to any incremental incurrence, both the Credit Agreement and the Notes Indenture capacity be calculated independently to confirm compliance with both sets of covenants.
In addition to the leverage-based test, the Notes Indenture contains a general indebtedness basket and a credit facility basket (understood to be $[TBD] million) that would need to be checked when incurring any incremental facility. The interplay between the Credit Agreement incremental baskets and the Notes Indenture incurrence baskets requires careful coordination. We understand that Kellner Brandt & Associates LLP (Patricia Voss, partner) is serving as sponsor's counsel and has primary responsibility for the Notes Indenture compliance analysis, and that Nexford's in-house legal and treasury team — David Engstrom, General Counsel, and Priya Mehta, Vice President, Treasury — is coordinating the internal compliance review. We recommend that C&H schedule a call with Kellner Brandt and the Nexford in-house team to align on the parallel compliance analysis before any post-closing incremental incurrence is contemplated.
Finally, the First Lien/Unsecured Intercreditor Agreement currently being negotiated between Crescent Harbor Bank, N.A. (as first lien collateral agent) and Pinnacle Trust Company (as trustee for the Existing Notes holders) addresses the priority of claims and enforcement rights as between the first lien creditors and the unsecured noteholders. The first draft of this intercreditor agreement was circulated by W&G on March 12, 2025, and C&H's marked draft is expected to be returned to W&G on March 19, 2025. While the intercreditor agreement should not impose additional limitations on the Borrower's ability to incur incremental debt (the incurrence capacity is governed by the Credit Agreement and the Notes Indenture, not the intercreditor agreement), any incremental first lien debt incurred after closing would need to be designated as "First Lien Obligations" under the intercreditor agreement. This designation is accomplished through a joinder mechanism, pursuant to which the representative for the holders of the incremental first lien debt (whether the Administrative Agent, in the case of in-agreement incremental facilities, or a new collateral agent, in the case of pari passu Incremental Equivalent Debt) executes a joinder to the intercreditor agreement. We discuss the importance of ensuring the administrative workability of this joinder mechanism in Section IX.B below.
VIII. Summary of Total Incremental Capacity
A. Estimated Incremental Capacity at Closing
The following table summarizes the estimated incremental borrowing capacity available to Nexford as of the anticipated Closing Date, based on the provisions of the Credit Agreement as currently drafted:
Important Notes:
(i) Incremental Equivalent Debt shares capacity with the above baskets. The incurrence of Incremental Equivalent Debt under either the Free-and-Clear Basket or the ratio-based basket reduces the available capacity under the applicable basket on a dollar-for-dollar basis. Incremental Equivalent Debt does not represent additional capacity beyond the amounts shown in the table above.
(ii) The Free-and-Clear Basket and the ratio-based basket may be used in combination for a single incurrence. For example, the Borrower could incur $500,000,000 of incremental debt by allocating $385,000,000 to the Free-and-Clear Basket and the remaining $115,000,000 to the ratio-based basket (subject to the Ratio Incurrence Test being satisfied with respect to the $115,000,000 allocated to that basket, after giving pro forma effect to the full $500,000,000 incurrence).
(iii) The Borrower retains the ability to reclassify amounts between baskets, subject to the conditions and limitations discussed in Sections III.C and IX.A.5 of this memorandum.
(iv) The "theoretical maximum" of approximately $817,500,000 overstates the practical combined capacity because utilization of the Free-and-Clear Basket increases leverage and reduces the remaining ratio-based capacity. The actual combined capacity at any given time will depend on the interaction between the baskets.
B. Practical Considerations
The incremental capacity figures presented above represent a snapshot as of the anticipated Closing Date. In practice, the actual available capacity will be dynamic, changing over time in response to several factors:
EBITDA Growth. Both the Grower Component of the Free-and-Clear Basket (100% of LTM Consolidated EBITDA) and the ratio-based capacity are directly influenced by the Borrower's EBITDA. As EBITDA grows — whether through organic revenue growth, margin expansion, cost reductions, or the contribution of acquired businesses — both baskets expand. Conversely, an EBITDA decline would reduce capacity under both baskets. According to the financial projections prepared by Stonebridge Advisory Group, LLC (the Borrower's financial advisor), Nexford's Adjusted EBITDA is projected to grow from $385,000,000 in the LTM period ended December 31, 2024 to approximately $425,000,000 in the fiscal year ending December 31, 2025 and $465,000,000 in the fiscal year ending December 31, 2026. If these projections are achieved, the Free-and-Clear Basket would grow to $425,000,000 and $465,000,000, respectively, and the ratio-based capacity would expand correspondingly.
Debt Repayment. The Term Loan B requires quarterly amortization payments of $3,500,000 per quarter, or $14,000,000 per annum (representing 1.00% annual amortization on the initial $1,400,000,000 principal amount). Each amortization payment reduces the outstanding first lien debt balance, which in turn reduces the numerator of the First Lien Net Leverage Ratio and increases the available ratio-based capacity. Over the seven-year tenor of the Term Loan B, aggregate scheduled amortization payments would total approximately $98,000,000 (subject to adjustment for any incremental facilities or prepayments).
Excess Cash Flow Sweeps. In addition to scheduled amortization, the Credit Agreement requires the Borrower to apply a percentage of annual Excess Cash Flow (as defined) to prepay the Term Loan B. The sweep percentage steps down based on the Borrower's first lien net leverage:
•  50% of Excess Cash Flow if first lien net leverage exceeds 4.25x
•  25% of Excess Cash Flow if first lien net leverage is between 4.25x and 3.50x (inclusive)
•  0% of Excess Cash Flow if first lien net

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