Grower baskets in leveraged finance
Hi guys, is anyone from Credit / high yield familiar with the concept of grower baskets? Would appreciate it if anyone could share how it works or provide an example!
Cheers.
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It essentially allows the borrower a continuous ability to take cash out of the business. The grower basket can apply to a variety of negative covenants, but an example could be restricted payments. It would start at a certain EBITDA amount, and usually grows at 50% of NI
Grower baskets usually scale as % of EBITDA or assets while builder baskets begin with a starter amount and grow with either retained excess cash flow or 50% of consolidated net income
What’s the difference between builder and grower?
Both are exceptions to negative covenants, but grow differently. Builder grows uniformly while there is no established rate by which grower baskets are set. Largely depends on what exceptions to negative covenants you want to include in a builder vs a grower
In common usage, when people refer to the "builder" basket they are talking about the restricted payments basket allowing for retained ECF of 50% of CNI to be distributed to equity (or used for investments or debt prepayments of junior debt). Grower baskets generally refer to baskets that are capped at the greater of a fixed amount and a % of EBITDA or total assets.
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