I'd really like to understand credit agreements like I do purchase agreements. For example, I want to be able to cleanly pick out the covenants, how they are calculated, what is permissible / impermissible, etc. At best, I can see the surface layer when going through them, and it is difficult to pick out key details.
Does anyone know of a good resource to learn more about and/or get a walkthrough on these?
Thanks
| +225 | Coverage Banking is Paradise | 28 | 8h |
| +96 | London Recruiting is Paradise | 42 | 33m |
| +75 | My Motivation Is At An All Time High | 13 | 2d |
| +57 | Are Canadians still get jobs in the US? | 41 | 1h |
| +40 | Is 7 years in banking enough to retire, or am I delusional? | 24 | 6h |
| +32 | MM IB --> NYC IB? | 17 | 4h |
| +31 | Do actual investment bankers despise IB TikTokers as much as I think they do? | 21 | 35m |
| +24 | Negotiating VP Sign-On Bonus (NOT Tied to Deferred Comp)? | 21 | 1d |
| +24 | Should I escape the matrix | 3 | 2d |
| +23 | Lawyer moving into Banking | 19 | 8h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Based on the most helpful WSO content, here are some resources and tips that might help you understand debt structuring and credit agreements better:
Look for an 8-K that was released on the day of the debt instruments issuance. You'll probably find a document that includes either the credit agreement or indenture. These are usually long, so focus on the negative covenant section of the document, which typically includes the financial maintenance covenants.
Many companies' 10K / 10Q include a "Covenant" section. Check that before going through the whole process of reading a credit agreement as it will be way faster.
Understand the different types of covenants (financial covenants, maintenance covenants, incurrence covenants) and how they can limit operations (permitted capex, permitted expenditures).
Learn about the provisions that could prevent companies from accessing liquidity or raising new funds, and those that could generate additional returns for junior debt holders (PIK, penny warrants).
Structured products are something to consider as well. They give you a great blend of legal, structural, covenant, and credit risk exposure.
Read the definitions and follow through when you're reading tricky bits of the credit agreement. For example, should the leverage covenant exclude junior debt? Is it intended that the borrower can incur an unlimited amount of junior debt and never breach a covenant by doing so?
Remember, the more you practice, the better you'll get at picking out key details. Keep going, you're doing great!
Sources: Private Credit Resources and Prep, Q&A: Leveraged Finance Lawyer here, What are the different types of Credit?, Restructuring Associate Interview
Are you in a particular industry? I would pull credit agreements of some industry public comps (hyperlinked in the 10K's appendix/exhibits) and thoroughly read through the covenant definitions (there should be a section for covenants which detail out the actual number that the covenant is, and then the coveneant uses definitions (e.g., defining all accounts that go into "Adjusted EBITDA") that are in the definitions section - you often times have to flip back and forth to track the whole covenant). Honestly they're not overly complex and there's a few basic ones - can think of fixed charge coverage ratio, debt / ebitda ratio, NWC ratios, maybe some borrowing base covenants, and then they're typically industry-specific after that. I know I'm missing some but a review of a few credit agreements should be able to give you enough to feel dangerous
Any tips on how to understand purchase agreements as an aside?
I had this same question when I stepped into my role because we were a deal shop and we managed the turns of the PSA's in-house...honestly if you've got a corporate lawyer buddy, that's your best bet...they can explain all the nonsense that is reps and warranties, impacts of purchase price allocation, etc.
Non veritatis eveniet dolorem amet et. Pariatur voluptatem voluptatem in modi ut voluptatem omnis eaque. Nihil quasi sed saepe consequatur rem similique in tempora. Dolor rerum sapiente nihil voluptatem commodi natus ut. Autem laboriosam praesentium voluptas numquam. Distinctio voluptas debitis sed modi.
Explicabo numquam dolor dolorem non consequatur est. In qui voluptas deserunt ex debitis in. Aut quibusdam quae et mollitia autem. Qui aut quae quia sapiente perferendis sapiente. Et in nobis cum aut id animi doloribus non. Consequatur quis dolore est dolore optio.
Id omnis consequatur nihil dolorum consequuntur a in perferendis. Magni esse sed aliquam ipsa ut. Vero assumenda excepturi aut dolore exercitationem sed.
Reiciendis soluta dolor sunt recusandae iure nisi. Sit asperiores provident velit voluptatibus. Beatae odio amet dolorem placeat.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...