Review Distressed Credit Facility Scenario 01

Skill: Review Distressed Credit Facility — Issue Identification Memorandum

1. Subject-matter triage

• Treat this as a distressed-credit review of the full facility stack and related transaction documents, not a generic contract summary.
• First identify all time-sensitive restructuring constraints: standstill, forbearance, maturity, covenant default, acceleration, and any consent deadline.
• Then map the documents into issue buckets: collateral, guarantees, lender consent mechanics, rescue-financing feasibility, EBITDA/covenant compliance, ownership/change-of-control, assignment risk, and cross-agreement spillover.
• If only one relevant period, party group, or financing path exists, say so explicitly; otherwise enumerate each and analyze them separately.

2. Failure modes the skill is correcting

• Missing the standstill or forbearance end date and therefore failing to anchor the restructuring timeline.
• Treating the facility in isolation and overlooking provisions in related agreements that independently trigger on a change of control or similar event.
• Missing a collateral-package gap created when a pledge limitation is drafted for one entity type but applied more broadly than intended.
• Failing to recognize structural subordination where operating-subsidiary creditors sit ahead of parent-level lenders because a subsidiary is not a guarantor.
• Assuming rescue financing is feasible without testing whether the authorized financing capacity can actually support the repayment conditions tied to it.
• Overlooking lender-blocking power, hostile assignment risk, or required-consent mechanics that can control the workout process.
• Accepting pro forma EBITDA add-backs without testing whether the claimed synergies, savings, or other adjustments are supportable within the applicable time window.

3. Legal frameworks / domain conventions that apply

• Collateral scope must be read by entity type, grant language, and defined collateral limitations; a limitation that does not fit the entity actually owning assets can leave a material gap in the secured package.
• Structural subordination is a priority problem, not a drafting nicety: if a parent lender lacks guarantees from operating subsidiaries, the lender’s practical recovery may be junior to the subs’ creditors.
• Rescue financing or similar reset financing must be tested against any contractual cap, repayment condition, or consent requirement; if the facility to be repaid exceeds the permitted financing headroom, the structure may be unworkable.
• Lender consent thresholds matter as much as the covenant text; identify whether a single holder or small group can block amendments, waivers, defaults, or releases under the voting provisions.
• EBITDA add-backs, synergies, and cost-savings adjustments should be tested against the agreement’s express timing and support requirements; unearned add-backs may inflate compliance headroom.
• Standstill and forbearance periods are operative deadlines and should be calculated from the documents as written, including any extensions or automatic termination language.
• Change-of-control definitions in the facility can propagate to equity arrangements, JV agreements, puts, call rights, and similar side documents that incorporate the same trigger.
• Open-market assignment provisions can create a hostile-lender risk if a creditor can accumulate a blocking position or strategic veto rights.
• Cite the controlling contractual provision or generally recognized legal doctrine for each conclusion drawn from the documents; do not state a legal effect without naming the rule, clause, or standard supporting it.

4. Analytical scaffolds

• Review the documents section by section, then cross-check defined terms against operative provisions and related agreements.
• For each issue, use the same closure sequence:
  • Provision / authority.
  • Problem.
  • Scale or threshold, using the source documents’ own numbers, dates, or voting mechanics.
  • Interaction with another clause, schedule, or related document.
  • Downstream consequence for the client.
  • Recommended fix or next step.
• Treat every issue as incomplete unless it ties a document-based threshold to a cross-document interaction and a concrete restructuring consequence.
• For timing questions, compute the relevant date from the source documents and state it as a restructuring deadline in plain terms.
• If multiple lenders, facilities, tranches, or trigger dates exist, enumerate them first and then analyze each on its own terms; do not collapse distinct mechanics into one generalized pass.
• Apply a uniform severity scale across the memo and assign a severity level to every issue, with a one-line rationale for the level selected.
• Use the source documents’ terminology for covenants, defaults, waivers, events of default, permitted debt, liens, and control rights.

5. Vertical / structural / temporal relationships

• Separate upstream holding-company debt from operating-company debt and analyze how creditor priority shifts across the structure.
• Identify any subsidiary, restricted entity, or non-guarantor whose assets or cash flow sit outside the direct collateral or guarantee net.
• Trace whether a covenant default, control event, or financing amendment in the credit facility automatically ripples into side agreements or equity arrangements.
• Build a deadline timeline that places standstill expiration, covenant test dates, reporting dates, consent windows, maturity dates, and any acceleration-related dates in chronological order.
• When a deadline drives transaction urgency, make that linkage explicit: date, source provision, and practical consequence.

6. Output structure conventions

• Write a numbered issues memo in conventional legal style, not as a checklist dump.
• Begin with a short severity legend, using an ordinal scale such as Critical / High / Medium / Low, defined once and used consistently.
• Include a deadline timeline section that lists the key restructuring dates in chronological order.
• For each issue, use a compact sub-structure: Severity; Provision / Authority; Problem; Scale; Cross-Reference; Consequence; Recommendation.
• End with an explicit Recommended Actions section that gives imperative next steps, assigns a responsible role, and ties each step to a source-document deadline or restructuring milestone.
• Keep the memo focused on restructuring-relevant risks; do not summarize ordinary boilerplate unless it changes the risk analysis.