About the Author... ix Table of Chapters... xi Foreword to the Second Edition Reflections on the Financial Crisis... xxxi Preface... xlvii Chapter 1 Introduction... 1 1:1 What Is Corporate Finance, and Why This Book... 1 1:2 What This Book Covers... 3 1:3 What This Book Doesn t Cover... 3 1:4 Caveat... 5 Chapter 2 The Players... 7 2:1 The Company Perspective... 8 2:1.1 Debt Versus Equity... 8 2:1.2 Short-Term or Long-Term Debt... 9 2:1.3 Illiquidity Versus Insolvency... 10 2:1.4 Matching Liabilities to Assets; Managing Maturities.. 10 2:1.5 Market Conditions... 12 2:1.6 Fixed-Rate Financing and Call Protection... 12 2:1.7 Short-Term Pricing with Medium-Term Assurance of Access to Funds Through a Backstop... 13 2:1.8 Nature of the Business... 14 2:1.9 Maturity of the Business... 16 2:1.10 Where Does the Company s Cash Come From?... 17 2:1.11 Implications for Lawyers... 18 2:2 Investors and Intermediaries... 19 2:2.1 Individual and Institutional Investors in the Public or Quasi-Public Markets; Underwriters and Placement Agents... 19 xiii
DRAFTING FOR CORPORATE FINANCE 2:2.2 Banks and Other Lenders in the Bank Loan and Private Placement Markets...21 2:2.3 Competition and Consolidation in the Banking Industry...22 2:2.4 Implications for Lawyers...23 2:3 Exchanges, Regulators and Industry Associations...24 2:3.1 Another Kind of Liquidity; Trading and Exchanges...24 2:3.2 Primary Regulators and Self-Regulatory Organizations...26 2:3.3 Industry Associations...26 2:3.4 Implications for Lawyers...27 2:4 Ancillary Players...27 2:4.1 Providers of Trustee and Administrative Services...27 2:4.2 Rating Agencies...28 2:4.3 Accountants...29 2:4.4 Financial Printers...30 2:4.5 Lawyers...31 2:5 The Evolving Market; Hedge Funds and Private Equity; Derivatives...31 2:5.1 The Status Quo Ante...31 2:5.2 Change Happens...32 2:5.3 Private Equity and Leveraged Buyouts...33 2:5.4 Hedge Funds...33 2:5.5 Derivatives, and Credit Derivatives in Particular...34 2:5.6 Playing a Game of Catch-Up...36 2:6 The M&A Connection...36 2:6.1 Financial Engineering and Financial Buyers...36 2:6.2 Assessment of the Target Company Debt...37 2:6.3 The Acquisition Debt...38 2:6.4 Bridge Loans, PIK, Staple or Stapled Financing... Innovation Is the Rule...39 2:6.5 Implications for Lawyers...41 Chapter 3 The Instruments...43 3:1 Review of the Basic Terms...43 3:1.1 Scheduled Maturity; Mandatory Repayment; Optional Repayment; and Call Versus Non-Call...43 xiv
3:1.2 Yield and Coupon; Yield and Price; Accrual; Fixed Rate Versus Floating Rate; Margin and Spread... 44 3:1.3 Rating... 47 3:2 Plain Vanilla Finance... 48 3:2.1 Common Stock... 48 3:2.2 Preferred Stock... 48 3:2.3 Convertible Debt... 49 3:2.4 Commercial Paper... 49 3:2.5 Bank Debt Revolving Credits... 51 3:2.6 Bank Debt Letters of Credit... 52 3:2.7 Bank Debt Term Loans... 55 3:2.8 Private Placement Debt... 55 3:2.9 Public or Rule 144A Debt... 55 3:3 Complex Finance... 56 3:3.1 Structured Finance... 56 3:3.2 Derivatives... 59 3:3.3 Financial Engineering and Rule Arbitrage; Issues for Lawyers... 61 Chapter 4 Accounting Matters... 63 4:1 Financial Statements... 63 4:2 The Balance Sheet and What s Not on It... 66 4:3 The Income Statement; LIFO and FIFO... 72 4:4 EBITDA... 74 4:5 How the Financial Statements Fit Together... 75 4:6 Consolidation; Minority Interests; Equity Accounting... 77 4:7 Interplay of Consolidation Concerns and Off-Balance-Sheet Financing... 78 4:8 How Financial Statements and Financial Reality Can Diverge... 78 Chapter 5 Bankruptcy Rules of the Endgame... 81 5:1 Priorities of Recovery... 81 5:2 Fraudulent Conveyance... 83 5:3 Preference... 85 xv
DRAFTING FOR CORPORATE FINANCE Chapter 6 The Issuer and the Obligation: Recourse, Ranking, Rights, and Remedies...89 6:1 Identify the Obligor...90 6:1.1 Who s on the Hook?...90 6:1.2 What s in a Name?...90 6:1.3 What Type of Legal Entity?...91 6:1.4 What Is Non-Recourse Financing?...92 6:2 Debt or Equity or Something Else?...92 6:3 Secured or Unsecured?...93 6:3.1 Benefits of Security...93 6:3.2 Terminology; Negative Pledges; Equitable or Constructive Liens...94 6:3.3 Nothing Short of Perfection Will Do...94 6:3.4 Types of Collateral...95 6:3.5 Which Rules Apply?...96 6:3.6 Need for Careful Review; Key Defined Terms...96 6:3.7 A Note on Stock Pledges...97 6:3.8 What About Proceeds?...97 6:3.9 Preference Risk...98 6:3.10 In a Troubled Credit Situation...98 6:3.11 Roles of Collateral Trustee, Custodian, or Servicer...99 6:3.12 Sharing Collateral...99 6:3.13 Consistency with Debt Agreements; Release of Collateral... 100 6:4 Senior or Subordinated?... 101 6:4.1 Subordination Is Contractual, Not an Absolute Priority... 101 6:4.2 The Payover Provision; Obligations of the Issuer Unaffected... 102 6:4.3 Definition of Senior Debt; Tiers of Subordinated Debt... 103 6:4.4 The Credit Agreement Debt... 104 6:4.5 Designated Senior Debt, Payment Blockage and Delay on Acceleration... 105 6:4.6 Anti-Layering...106 6:4.7 Terms That Can Frustrate Subordination... 106 6:4.8 Guarantees of Subordinated Debt... 107 xvi
6:4.9 When Subordinated Debt Is Secured; Second Lien Debt... 107 6:4.10 What Conclusions Can Be Drawn?... 110 Chapter 7 Beyond the Issuer: Corporate Structure Issues... 113 7:1 Structural Subordination... 113 7:1.1 Structural Subordination... 113 7:1.2 Pledge of Intercompany Loans; Upstream Guarantees... 115 7:1.3 Stock and Debt of Subsidiaries... 116 7:2 Subsidiaries Presumptively Within the Credit Group... 117 7:2.1 Wholly Owned Versus Non-Wholly Owned Subsidiaries; Preferred Stock... 117 7:2.2 Restricted Versus Unrestricted Subsidiaries... 118 7:2.3 U.S. Versus Non-U.S. Subsidiaries... 119 7:2.4 Material or Significant Subsidiaries... 120 7:2.5 Single-Purpose or Special-Purpose Subsidiaries... 120 7:3 Non-Subsidiary Affiliates Presumptively Outside the Credit Group... 121 7:3.1 Upstream Affiliates... 121 7:3.2 Sisters... 122 7:3.3 Joint Ventures, Minority Interests, and the Like... 123 Chapter 8 Commitments, Conditions, Pricing, and Risk; Liquidity Support and Credit Support; Credit Derivatives... 125 8:1 Commitments, Conditions, Pricing, and Risk... 125 8:2 Beyond the Issuer: Analyzing Levels of Credit Support... 129 8:3 Liquidity Support... 129 8:4 Credit Support and Credit Substitution... 130 8:4.1 Guarantees... 130 8:4.2 Non-Guarantee Credit Support?... 131 8:4.3 Letters of Credit... 132 xvii
DRAFTING FOR CORPORATE FINANCE 8:4.4 Bond Insurance... 132 8:4.5 Credit Derivatives?... 132 Chapter 9 A Deal in Time... 135 9:1 The Deal Life Cycle and the Role of the Lawyer... 136 9:2 Understanding the Company and Its Financing Needs... 136 9:3 Defining the Market and Instrument... 136 9:4 Locating and Using Forms and Precedents... 137 9:5 Preliminary Agreements Term Sheets and Commitment Letters... 138 9:6 Due Diligence, Detail, and the Preliminary Agreement... 140 9:7 Drafting and Negotiation... 141 9:7.1 The Drafting Process... 141 9:7.2 Golden Rules of Document Drafting and Negotiation... 141 9:7.3 How to Read a Contract... 142 9:7.4 Negotiation and the Lawyer s Role... 144 9:7.5 Common Errors in Decision-Making... 144 9:8 Closings... 147 9:8.1 Good Closings... 147 9:8.2 Typical Documentary Requirements... 149 9:8.3 Potential Documentation Problems... 150 9:8.4 Requirements in the International Context... 152 9:8.5 Related Transactions and Simultaneous Closings... 152 9:9 Opinions... 153 9:9.1 Opinions Are Hard; Not Just a Word-Processing Exercise...153 9:9.2 The Basic Opinion... 155 9:9.3 Conclusions About Legal Facts... 156 9:9.4 Security Interest Opinions... 156 9:9.5 True Sale and 10b-5 Opinions... 157 9:9.6 Rules to Opine By... 157 9:10 Post-Closing...159 9:10.1 Final Documents and Closing Sets... 159 9:10.2 Post-Closing: Amendments, Waivers, and Questions of Interpretation (When to Call a Lawyer)... 160 xviii
Chapter 10 Contract Structure and Key Elements... 161 10:1 Overview... 162 10:2 Title, Date, and Parties; References to Other Contracts... 163 10:3 Successors and Assigns?... 164 10:4 Conditions Precedent... 165 10:5 The MAC Clause, Material Litigation, and Incipient Events of Default... 166 10:6 Representations and Warranties... 169 10:6.1 Representations As Hidden Covenants... 169 10:6.2 Representations About the Unknown: Who Bears the Risk?... 170 10:6.3 Misrepresentation Versus Inability to Make a Representation... 171 10:7 Covenants... 171 10:7.1 Affirmative Covenants, Negative Covenants, and Financial Covenants... 171 10:7.2 Maintenance Versus Incurrence Tests... 172 10:7.3 Principles of Covenant Design and Analysis... 172 10:7.4 Related Definitions: How Important Are They?... 173 10:8 Defaults... 174 10:8.1 Default Versus Event of Default... 174 10:8.2 Acceleration; the Ipso Facto Clause... 175 10:8.3 Cross-Defaults... 175 10:8.4 Judgment and Lien Defaults... 176 10:9 General or Miscellaneous Terms... 177 10:10 Definitions... 177 10:11 Who s Covered?... 178 10:12 How Do the Provisions Work Together?... 178 Chapter 11 Housekeeping, Insurance, and Information Covenants... 181 11:1 Good Housekeeping... 181 11:2 Insurance Covenants... 182 11:3 Information Covenants... 183 xix
DRAFTING FOR CORPORATE FINANCE Chapter 12 Debt and Liens (Negative Pledges)... 185 12:1 The Negative Pledge (Restriction on Liens)... 185 12:2 The Construction of Negative Covenants... 186 12:3 Equal and Ratable Clauses... 187 12:4 Restrictions on Sale-Leasebacks... 189 12:5 Restrictions on Negative Pledges... 190 12:6 Debt Covenants... 190 12:7 Restrictions on Debt of Subsidiaries... 191 12:8 The Priority Debt Package... 192 Chapter 13 General Business Covenants... 193 13:1 Purposes... 193 13:1.1 Preserving the Identity of the Obligor and the Source of Repayment...194 13:1.2 Reducing Risk... 195 13:1.3 Controlling the Use of Cash... 195 13:2 By Type of Transaction or Activity... 195 13:2.1 Mergers and Asset Sales... 195 13:2.2 Restricted Payments... 198 13:2.3 Investments... 199 13:2.4 Line of Business... 200 13:2.5 Capital Expenditures... 200 13:2.6 Acquisitions?... 201 13:2.7 Leases... 201 13:2.8 Guarantees and Contingent Obligations... 202 13:2.9 Assignment of Receivables... 202 13:2.10 Transactions with Affiliates... 203 13:2.11 Other... 204 13:3 Constructing a Multi-Covenant Basket... 205 13:4 Cross-References to Ensure Consistent Treatment... 205 13:5 Change of Control Provisions and Definitions... 205 Chapter 14 Financial Covenants... 207 14:1 Lawyers Should Not Be Afraid of Financial Covenants... 207 14:2 Correcting Toward Cash and Fair Value... 208 14:3 Maintenance Versus Incurrence Tests (Again); Historical Versus Adjusted or Pro Forma... 208 xx
14:4 Coverage Versus Balance Sheet Tests; Timing Questions... 209 14:5 Coverage Tests... 210 14:5.1 The Numerator... 211 14:5.2 EBITDA... 211 14:5.3 The Denominator... 211 14:5.4 Depreciation and Capital Expenditures... 212 14:6 Leverage Ratio of Debt to Cash Flow... 213 14:7 Balance Sheet Tests... 214 14:7.1 Net Worth... 214 14:7.2 Balance Sheet Leverage Test... 215 14:8 Minimum Operating Results... 215 14:9 Liquidity and Working Capital Tests... 216 14:10 Excess Cash Flow Sweeps... 216 Chapter 15 Amendments, Waivers, and Control Provisions... 217 15:1 Amendments and Waivers... 217 15:1.1 Level of Consent Required... 217 15:1.2 Can the Obligor Vote?... 219 15:1.3 Multi-Series or Multi-Tranche Agreements... 219 15:1.4 Banks and Bondholders That Do Not Go Along... 221 15:2 Amendment Versus Waiver; Form of Amendment... 222 15:3 Shared Collateral; Intercreditor Agreements; Standstill Agreements... 224 15:4 Analyzing Control Provisions... 225 15:4.1 A Common Apparent Anomaly... 225 15:4.2 Trading of Loans and Bonds, and the Relevance to Control... 225 15:4.3 How to Review Control Provisions... 226 Chapter 16 Risk-Based Review; Transactions Analysis... 229 16:1 Spend Your Time Wisely... 230 16:2 How to Deal with Boilerplate and Other Standard Provisions... 231 xxi
DRAFTING FOR CORPORATE FINANCE 16:3 Recommendations and Questions for Risk-Based Review... 232 16:3.1 Party and Client Identification... 232 16:3.2 Correspondence to Term Sheet... 233 16:3.3 Closing Documents; Disclosure Schedules; Side Agreements; the Closing Set... 233 16:3.4 Opinions... 234 16:3.5 Timing, Risk, Commitments, and Conditions; Continuing or Repeating Representations...235 16:3.6 Complex Calculations and Tax Provisions... 235 16:3.7 Security... 235 16:3.8 Interrelatedness and Consistency Generally Within the Financing...236 16:3.9 How Different Financings Work Together... 237 16:3.10 Credit Support or Liquidity Support?... 238 16:3.11 Covenants Dealing with Securitization and Derivatives... 238 16:3.12 Definition of the Corporate Group; Definitions of Affiliates and Control... 239 16:3.13 Adverse Developments Stress Testing... 239 16:3.14 M&A Scenarios... 240 16:3.15 Maintaining Flexibility: Amendments, Waivers, and Refinancing Options... 240 16:4 Transactions Analysis at the Margin... 240 Chapter 17 Best Practices... 243 17:1 Drafting As a Professional Skill... 243 17:1.1 Cross-References... 244 17:1.2 Consequential and Conforming Changes... 244 17:1.3 Working with Precedent... 245 17:1.4 Excessive Generality and Too Much Specificity; Over-Engineering... 246 17:1.5 Identifying and Correcting Ambiguity; Vagueness... 247 17:1.6 Logical Completeness and Correctness; Speculative Worlds?... 248 17:1.7 Over-Drafting... 248 17:1.8 Too Many Words... 249 xxii
17:1.9 Good Definitions... 249 17:1.10 Provisions in Related Documents... 251 17:1.11 Lists... 251 17:2 Drafting Disclosure of Contract Terms... 251 17:2.1 Where the Contract Is Relevant but Is Not the Main Event... 251 17:2.2 For the Selling Document for the Debt... 252 17:2.3 In Regular Disclosure for Public Companies?... 252 17:3 Levering Technology Possibilities and Pitfalls; Documents Handling and Retention... 252 17:4 Lessons of Enron... 254 17:5 Stay Informed, Be Engaged, Live Long, and Prosper... 257 Appendix A Notes, Resources and Sample Language... 259 Chapter 1: Introduction... 261 Chapter 2: The Players... 262 Chapter 3: The Instruments... 270 Chapter 4: Accounting Matters... 271 Chapter 6: The Issuer and the Obligation: Recourse, Ranking, Rights, and Remedies... 272 Sample 6-A Subordination Provisions... 272 Chapter 7: Beyond the Issuer: Corporate Structure Issues... 277 Sample 7-A Limitation on Issuances of Guarantees of Indebtedness... 277 Sample 7-B Restriction on Transfer of Assets... 278 Sample 7-C Guaranties by Restricted Subsidiaries... 278 Sample 7-D Savings Clause... 279 Sample 7-E Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries... 279 Sample 7-F Wholly-Owned Subsidiary Version 1... 279 Sample 7-G Wholly-Owned Subsidiary Version 2... 279 Sample 7-H Limitation on Restrictions Affecting Subsidiaries... 279 Sample 7-I Permitted Refinancing Concept Version 1... 280 Sample 7-J Permitted Refinancing Concept Version 2... 283 Sample 7-K Subsidiary and Voting Stock Definitions Version 1... 286 xxiii
DRAFTING FOR CORPORATE FINANCE Sample 7-L Subsidiary and Voting Stock Definitions Version 2... 286 Sample 7-M Subsidiary and Voting Stock Definitions Version 3... 287 Sample 7-N Restricted Subsidiary and Unrestricted Subsidiary Version 1... 287 Sample 7-O Restricted Subsidiary... 288 Sample 7-P Restricted Subsidiary and Unrestricted Subsidiary Version 2... 288 Sample 7-Q Restricted Subsidiary and Unrestricted Subsidiary Version 3... 289 Sample 7-R Foreign Subsidiary Version 1... 290 Sample 7-S Domestic Subsidiary Version 1... 290 Sample 7-T Foreign Subsidiary Version 2... 290 Sample 7-U Domestic Subsidiary Version 2... 290 Sample 7-V Significant Subsidiary Version 1... 290 Sample 7-W Significant Subsidiary Version 2... 290 Sample 7-X High-Yield Provisions That Accommodate a Receivables Subsidiary... 291 Sample 7-Y Nonrecourse Debt... 300 Chapter 9: A Deal in Time... 301 Sample 9-A Termsheet for a Credit Agreement... 301 Sample 9-B Termsheet for an Indenture... 305 Sample 9-C Closing Memorandum... 312 Sample 9-D Certificate of Secretary of Borrower... 315 Sample 9-E Board Resolutions... 316 Sample 9-F Board Resolutions Example of Vague Resolution... 317 Chapter 10: Contract Structure and Key Elements... 317 Chapter 11: Housekeeping, Insurance, and Information Covenants... 320 Sample 11-A Housekeeping Covenants Version 1... 320 Sample 11-B Housekeeping Covenants Version 2... 321 Sample 11-C Housekeeping Covenants Version 3... 323 Sample 11-D Simple Insurance Covenant Common Version... 324 Sample 11-E Simple Insurance Covenant Unusual Variation... 325 xxiv
Sample 11-F Insurance Covenant in a Secured Credit Agreement... 325 Sample 11-G Information Covenant Version 1... 328 Sample 11-H Information Covenant Version 2... 329 Sample 11-I Information Covenant Version 3... 332 Chapter 12: Debt and Liens (Negative Pledges)... 332 Sample 12-A Priority Debt Covenant Package... 332 Sample 12-B Negative Pledge Indenture (Investment Grade)... 337 Sample 12-C Negative Pledge Indenture (High-Yield)... 340 Sample 12-D Negative Pledge Indenture (Subordinated)... 342 Sample 12-E Negative Pledge Sample 12-F Credit Agreement Version 1... 343 Negative Pledge Credit Agreement Version 2... 346 Sample 12-G Negative Pledge Credit Agreement Version 3... 347 Sample 12-H Negative Pledge Credit Agreement Version 4... 348 Sample 12-I Debt Covenant Leverage Ratio... 349 Sample 12-J Debt Covenant Credit Agreement Version 1... 350 Sample 12-K Debt Covenant Credit Agreement Version 2... 351 Sample 12-L Debt Covenant High-Yield Indenture... 353 Sample 12-M Debt Covenant Credit Agreement Version 3... 356 Chapter 13: General Business Covenants... 356 Sample 13-A Merger Provisions Indenture (Investment-Grade)... 357 Sample 13-B Merger and Asset Sale Covenant Credit Agreement Version 1... 358 Sample 13-C Merger and Asset Sale Covenant Credit Agreement Version 2... 359 Sample 13-D Merger and Asset Sale Covenant Credit Agreement Version 3... 359 Sample 13-E Fundamental Changes Covenant... 360 xxv
DRAFTING FOR CORPORATE FINANCE Sample 13-F Fundamental Changes and Asset Sales Covenants... 361 Sample 13-G Merger and Asset Sale Covenant Credit Agreement Version 4... 361 Sample 13-H Asset Sales Covenant and Merger Provisions Indenture (High-Yield)... 363 Sample 13-I Mandatory Prepayment Provision Sample 13-J Credit Agreement... 369 Covenant Restricting Dividends and Other Payments on Stock (Borrower and Subsidiaries) Version 1...370 Sample 13-K Covenant Restricting Dividends and Other Payments on Stock (Borrower and Subsidiaries) Version 2...371 Sample 13-L Covenant Restricting Dividends and Other Payments on Stock (Borrower Only)... 372 Sample 13-M Covenant Restricting Optional Payments on Subordinated Indebtedness Version 1... 372 Sample 13-N Covenant Restricting Optional Payments on Subordinated Indebtedness Version 2... 373 Sample 13-O Restricted Payments Covenant Indenture (High-Yield)... 374 Sample 13-P Investments Covenant Version 1... 379 Sample 13-Q Investments Covenant Version 2... 381 Sample 13-R Investments Covenant Version 3... 381 Sample 13-S Line of Business Covenant Version 1... 382 Sample 13-T Line of Business Covenant Version 2... 383 Sample 13-U Line of Business Covenant Version 3... 383 Sample 13-V Line of Business Covenant Version 4... 383 Sample 13-W Line of Business Covenant Version 5... 383 Sample 13-X Line of Business Covenant Version 6... 383 Sample 13-Y Line of Business Covenant Version 7... 384 Sample 13-Z Capital Expenditure Covenant Version 1... 384 Sample 13-AA Sample 13-BB Sample 13-CC Capital Expenditure Covenant Version 2... 385 Capital Expenditure Covenant Version 3... 386 Capital Expenditure Covenant Version 4... 387 xxvi
Sample 13-DD Limitation on Acquisitions Version 1... 388 Sample 13-EE Limitation on Acquisitions Version 2... 389 Sample 13-FF Limitation on Acquisitions Version 3... 390 Sample 13-GG Limitation on Acquisitions Version 4... 392 Sample 13-HH Covenant Limiting Contingent Obligations... 392 Sample 13-II Covenant Limiting Contingent Obligations and Guarantees of Subsidiaries... 394 Sample 13-JJ Covenant Limiting Guarantees... 395 Sample 13-KK Sale-Leaseback Covenant Sample 13-LL Credit Agreement Version 1... 396 Sale-Leaseback Covenant Credit Agreement Version 2... 396 Sample 13-MM Sale-Leaseback Covenant Indenture (High-Yield)... 396 Sample 13-NN Lease Covenant Version 1... 397 Sample 13-OO Lease Covenant Version 2... 397 Sample 13-PP Prohibition on Sale of Receivables... 397 Sample 13-QQ Receivables Financing Covenant Provisions for an Indenture (High-Yield)... 398 Sample 13-RR Transactions with Affiliates Covenant Credit Agreement Version 1... 401 Sample 13-SS Transactions with Affiliates Covenant Credit Agreement Version 2... 402 Sample 13-TT Transactions with Affiliates Covenant Indenture (High-Yield)... 402 Sample 13-UU Capital Structures and Other Agreements Sample 13-VV Version 1... 404 Capital Structures and Other Agreements Version 2... 404 Sample 13-WW Capital Structures and Other Agreements Version 3... 405 Sample 13-XX Fiscal Year... 405 Sample 13-YY Control of Cash... 405 Sample 13-ZZ No Negative Pledges... 406 Sample 13-AAA Change of Control Version 1... 406 Sample 13-BBB Change of Control Version 2... 407 Sample 13-CCC Change of Control Version 3... 408 Sample 13-DDD Change of Control Version 4... 409 xxvii
DRAFTING FOR CORPORATE FINANCE Sample 13-EEE Change of Control Version 5... 410 Sample 13-FFF Limitations on Activities... 413 Chapter 14: Financial Covenants... 414 Sample 14-A Cash Flow Charge Coverage... 415 Sample 14-B EBITDA to Interest... 416 Sample 14-C EBITDA to Cash Interest...417 Sample 14-D Cash Flow to Debt Service... 419 Sample 14-E Cash Flow to Interest... 421 Sample 14-F Cash Flow to Fixed Charges... 422 Sample 14-G Cash Flow to Debt... 424 Sample 14-H Debt to EBITDA... 425 Sample 14-I Minimum EBITDA...426 Sample 14-J Cumulative EBITDA... 427 Sample 14-K Minimum Net Worth... 428 Sample 14-L Consolidated Tangible Net Worth Version 1... 428 Sample 14-M Consolidated Tangible Net Worth Version 2... 428 Sample 14-N Consolidated Tangible Net Worth Version 3... 429 Sample 14-O Consolidated Tangible Net Worth Version 4... 430 Sample 14-P Leverage Ratio Version 1... 430 Sample 14-Q Leverage Ratio Version 2... 431 Sample 14-R Cumulative EBITDA... 431 Sample 14-S Working Capital... 432 Sample 14-T Current Ratio...432 Sample 14-U Quick Ratio... 433 Sample 14-V Excess Cash Flow Version 1... 433 Sample 14-W Excess Cash Flow Version 2... 433 Sample 14-X Excess Cash Flow Version 3... 434 Sample 14-Y Excess Cash Flow Version 4... 435 Sample 14-Z Excess Cash Flow Version 5... 436 Sample 14-AA Limit on Cash... 436 Sample 14-BB Weekly Cash Sweep... 436 Chapter 15: Amendments, Waivers, and Control Provisions... 437 Chapter 16: Risk-Based Review; Transactions Analysis... 437 Chapter 17: Best Practices...439 xxviii
Appendix B Technical Drafting Checklist... 445 Appendix C Indicative Terms for Bank Debt and Public Debt, Investment Grade Versus Non-Investment Grade... 449 Appendix D Newco Goes to Wall Street 8½ Balance Sheets... 477 Appendix E Diary of a Liquidity Crisis: Enron s Last Days... 487 Index... 501 xxix