What Is A Builder Basket In A Credit Agreement

However, are these terms still used consistently? It seems that market participants sometimes use the terms “manufacturer”, “producer” and “scalable” baskets interchangeably, when in fact they are very different concepts. Since the words on his face have similar meanings, it is understandable that there is some degree of confusion about what these terms mean. Unlike modular baskets, which are built evenly with 50% of consolidated net profit or excess cash flow retained, there is no fixed rate at which certain baskets of producers are determined. Instead, the hard-cap component of the producer`s basket is often negotiated between the parties. As a result, the percentage level of the growth component of the “producer” basket is then set at the level that would give an amount equal to the amount of the ceiling based on EBITDA and/or total assets. What is the key idea behind a breeder`s basket? Unlike a basket of builders, which provides an additional level of flexibility under a restrictive covenant set by providing an additional performance-based exception, a basket of producers only adds a growth component based on a percentage of EBITDA or total assets to a restrictive covenant exception that was traditionally only a rigid cap amount. Ultimately, availability in a producer basket at a given time is intended to reflect the size of the business at that time and the corresponding increased needs of a large company. Like a manufacturer`s basket, a producer basket will grow over time with a better performance of the borrowing group, namely a better EBITDA position or a strengthened balance sheet. What is the best variable to build with? Consolidated net profit is generally considered preferable from the borrower`s perspective because it can accumulate faster than retained excess cash (although traditionally 100% of consolidated net losses reduce the size of the modular basket). We continue to see a split between the use of retained excess cash flows and consolidated net income as the variable on which the basket is built. Interestingly, if a sweep of excess cash flow is provided for in an investment agreement, tying the builder`s basket to the retained excess cash flow does not necessarily have to lead to the accumulation of the basket. This is because excess cash flows are often formulated in such a way as to generate little or no excess cash flow in order to minimize the amount of the loan repayment obligation under the excess cash flow scan through various deductions agreed with lenders, by . ? compulsory or voluntary amounts to repay the facilities in advance.

Authorized upfront payments of third-party liabilities and cash paid or pledged for eligible acquisitions. If a borrower manages to minimize the amount of excess cash flow, there will be little room for the builder`s basket because the excess cash flow retained is nominal. .