Managing Credit Facility Administration

When To Use

• Calculating borrowing base availability under a revolving credit facility
• Tracking financial covenant compliance (leverage ratio, interest coverage, fixed charge coverage, etc.)
• Preparing for quarterly or monthly compliance certificate submissions
• Managing amendment, waiver, or consent requests with the lender group
• Monitoring borrowing base eligibility criteria (eligible receivables, inventory, concentration limits)
• Coordinating draw-down requests, paydowns, or facility rollovers

Inputs To Gather

• Credit agreement — executed version plus all amendments, waivers, and side letters
• Borrowing base certificate — most recent submission and any interim updates
• Financial statements — period-end balance sheet, income statement, and cash flow statement used for covenant calculations
• Accounts receivable aging — detail by counterparty with dilution, dispute, and past-due flags
• Inventory report — by category (raw materials, WIP, finished goods) with appraisal values if required
• Covenant compliance certificate — prior period's certificate for trend comparison
• Lender correspondence — any recent notices, consent requests, or default/reservation-of-rights letters
• Amortization/fee schedule — commitment fees, unused line fees, letter of credit fees, and maturity dates

Workflow

1. Map facility terms — Extract key provisions from the credit agreement: facility size, maturity, applicable margins and pricing grid, mandatory prepayment triggers, borrowing base formula, and each financial covenant with its defined-term calculations. Note any springing covenants or seasonal adjustments.

2. Calculate borrowing base availability

   • Populate eligible receivables: exclude past-due (>90 days typical), cross-aged accounts, concentrations exceeding single-obligor caps, foreign receivables beyond sublimit, and government/affiliated-party exclusions. [VERIFY: specific eligibility criteria and aging thresholds per credit agreement]
   • Populate eligible inventory: apply advance rates by category (e.g., 65% finished goods, 50% raw materials), exclude slow-moving/obsolete, cap WIP if restricted. [VERIFY: advance rates and appraisal requirements]
   • Apply reserves: dilution reserve, rent reserve, priority-payable reserve, environmental reserves.
   • Compute net availability = borrowing base minus outstanding loans and letters of credit.

3. Run covenant calculations

   • Identify each financial covenant and its measurement period (trailing four quarters, single quarter, rolling twelve months).
   • Build calculations using credit-agreement-defined terms — not GAAP defaults — for Adjusted EBITDA, Total Funded Debt, Net Debt, Fixed Charges, etc. Watch for pro forma adjustments, permitted add-backs (restructuring, non-recurring), and capped add-back limits.
   • Compare computed ratios to covenant thresholds. Flag headroom or shortfall for each covenant.
   • For springing covenants, confirm whether the trigger condition (e.g., availability falling below a specified percentage of commitments) has been activated. [VERIFY: springing trigger thresholds]

4. Prepare compliance deliverables

   • Draft the compliance certificate in the form attached as an exhibit to the credit agreement.
   • Attach supporting schedules: borrowing base detail, covenant calculations, material debt schedule, and permitted investments/liens/dispositions tracker if required.
   • Confirm delivery deadline — typically 45-60 days post-quarter-end, 90-120 days post-fiscal-year-end. [VERIFY: specific delivery windows per agreement]

5. Manage amendments and waivers

   • If a covenant breach is anticipated, prepare a projected covenant forecast showing expected cure timeline.
   • Draft amendment/waiver request narrative explaining the operational context and proposed relief.
   • Identify required lender approvals: majority lenders vs. supermajority vs. unanimous consent based on the type of modification. [VERIFY: voting thresholds for specific amendment type]
   • Track amendment fees, legal costs, and any tightened terms (pricing step-ups, added reporting, additional reserves).

6. Monitor ongoing obligations

   • Track recurring reporting requirements: monthly/quarterly borrowing base certificates, annual audited financials, budget delivery, insurance certificate renewals.
   • Monitor negative covenant baskets: permitted indebtedness, liens, investments, restricted payments, asset dispositions. Maintain a running tally against basket capacities.
   • Flag upcoming maturity dates, interest period expirations, and SOFR/benchmark transition requirements.

Output

Produce a Credit Facility Administration Report containing:

• Facility summary — commitment amount, drawn balance, available capacity, maturity date, current applicable margin
• Borrowing base schedule — line-by-line eligibility, advance rates, reserves, and net availability
• Covenant compliance matrix — each covenant, threshold, actual result, cushion/shortfall, and pass/fail status
• Negative covenant basket tracker — capacity used vs. remaining for key baskets (debt, liens, investments, restricted payments)
• Upcoming deadlines — next compliance certificate due date, interest payment dates, fee payment dates, reporting milestones
• Issues and action items — anticipated covenant pressure, approaching concentration limits, amendment status, or required lender communications

Quality Checks

• Confirm all defined terms trace back to the credit agreement (not generic GAAP definitions) — especially Adjusted EBITDA add-backs and exclusions
• Verify arithmetic in borrowing base: individual line items should sum to reported totals; advance rates applied correctly
• Cross-check covenant inputs against the financial statements used in the compliance certificate
• Ensure pro forma adjustments (acquisitions, dispositions) are applied consistently with credit agreement provisions
• Validate that concentration limits, sublimits, and reserve calculations reflect the most recent amendment
• Confirm no events of default or potential events of default are overlooked (payment defaults, cross-defaults, MAC clauses, reporting failures)
• Mark any jurisdiction-specific or agreement-specific assumptions with [VERIFY]