Compare Credit Agreement Against Term Sheet

Skill: Credit Agreement vs. Term Sheet Deviation Report

1. Subject-matter triage

• Treat the term sheet as the baseline economic and structural bargain, and the draft credit agreement as the operative document to test against it.
• Read the full package before comparing: term sheet, draft agreement, related schedules/exhibits, transmittal or markup notes, and any side letters or summary emails if included in the source set.
• If the source set contains more than one draft, compare each against the same term sheet and separate true revisions from unchanged carryovers.
• If only one draft exists, state that the analysis is single-draft and do not infer missing alternates.

2. Failure modes the skill is correcting

• Spotting a change in pricing, covenant mechanics, conditions, or remedies without translating it into borrower-side consequences.
• Missing borrower-protective concepts that were in the term sheet but were narrowed, deleted, or omitted in the draft.
• Treating drafting changes as harmless when they alter economics, headroom, control rights, or refinancing flexibility.
• Failing to separate material deviations from stylistic edits, conforming cleanups, and defined-term housekeeping.
• Overstating or understating the significance of a change without tying it back to the transaction’s size, leverage, tenor, or cash flow profile.
• Ignoring whether a cover note or transmittal characterizes substantive revisions as non-substantive.

3. Legal frameworks / domain conventions that apply

• Use the term sheet as the business baseline, but evaluate the draft credit agreement as the controlling operative document.
• Compare pricing terms, including reference-rate mechanics, margins, floors, upfront or ticking fees, and default-rate structures.
• Compare repayment and prepayment architecture, including mandatory prepayment triggers, sweep mechanics, and basket or threshold protections.
• Compare leverage and covenant mechanics, including debt definitions, cash netting, EBITDA adjustments, baskets, and cure or reset concepts.
• Compare collateral, guaranty, and release mechanics where the term sheet addressed them, because omission or narrowing can change risk allocation.
• Compare change-of-control, mandatory prepayment, and event-of-default triggers for expansion beyond the bargain reflected in the term sheet.
• Compare borrower-favorable carve-outs in broad risk definitions and restrictive covenants, especially where the draft adds qualifiers, exceptions, or cross-default hooks.
• Compare timing mechanics for reinvestment, cure, consent, notice, and amendment rights because shorter windows often carry practical borrower cost.
• If a legal proposition is stated, tie it to the governing document text in the source set or to the standard credit-agreement convention being applied; do not state a conclusion without identifying the clause logic that supports it.

4. Analytical scaffolds

1. Baseline the bargain
   • Identify the principal economic and structural terms reflected in the term sheet.
   • Separate firm terms from indications, summaries, and open items.
2. Compare provision by provision
   • Test each material term in the draft against the term sheet.
   • Capture additions, deletions, narrowing edits, and changes in defined terms or cross-references that alter operation.
3. Measure borrower impact
   • For each deviation, assess whether it changes price, cash flow, headroom, optionality, control, or enforcement leverage.
   • Where the source set contains usable figures, tie the issue to the transaction size, facility capacity, covenant level, tenor, or other relevant scale.
4. Trace interactions
   • Cross-reference the issue to any other clause, schedule, exhibit, or definition that changes the practical effect of the revision.
   • Flag cascading effects where one edit tightens several related provisions.
5. Classify severity
   • Distinguish economic, structural, and technical deviations.
   • Use an explicit ordinal severity scale and apply it consistently across all issues.
6. Prioritize negotiation points
   • Rank the issues that most affect borrower economics, liquidity, flexibility, or closing certainty.
   • Distinguish items that are execution blockers from items that are clean-up points.
7. Assess transmittal characterization
   • Compare any cover note or markup summary with the actual scope of revisions.
   • Flag any mismatch between the stated and actual significance of changes.
8. Convert findings into action
   • End each issue with a practical borrower-side recommendation that identifies who should act and when the issue should be addressed.

5. Vertical / structural / temporal relationships

• Track whether a change in one section alters another section’s operation, especially where definitions feed covenants, remedies, or conditions.
• Track whether a later-declared “administrative” edit actually changes the timing, sequencing, or priority of borrower obligations.
• Track whether the draft tightens rights at the facility level, the tranche level, or the collateral level in a way the term sheet did not contemplate.
• Track whether a new condition, notice period, or reinvestment window shortens the borrower’s practical response time.
• Track whether a revision compounds across the life of the facility, such as through recurring fees, reset mechanics, or repeated compliance measurements.

6. Output structure conventions

• Produce a borrower-side deviation report organized by issue, not a narrative summary.
• Open with a short executive overview that identifies the most consequential deviations and states the overall negotiation posture.
• Define the severity scale once at the top, then apply it uniformly to every issue entry.
• For each issue, include:
  • term sheet baseline
  • draft agreement text or clause reference
  • deviation identified
  • borrower impact
  • severity
  • recommendation
• For every issue, make the impact analysis explicit and complete: quantify or scale the issue against a relevant source-document figure or threshold when available, cross-reference the interacting clause or document, and state the downstream consequence for the borrower.
• Group the highest-severity deviations first.
• Separate economic deviations from structural deviations, and keep drafting cleanups in a lower-priority section.
• Include a distinct section for transmittal or cover-note characterization if one exists.
• End with a Recommended Actions section that gives imperative borrower-side steps, identifies the responsible role, and includes a timing anchor tied to signing, execution, or another transaction milestone.
• Keep the report concise but decision-useful; omit repetition and avoid describing issues that do not change the bargain.