Leveraged Finance Toolkit: Commitment Letters, Covenant Packages, and Intercreditor Terms

Document type: Toolkit Practice area: Corporate — Finance Jurisdiction: United States (federal and New York) Last reviewed: 5 September 2026

How to use this toolkit

Where variants appear — Sponsor, Lender, Middle — the middle version is where negotiated deals land and is the right first draft from either side. The doctrinal background is in the companion article; the provisions that matter most are the ones that determine what a majority of lenders can do to a minority, and what a borrower can do with collateral.

Two anchors to keep in view while drafting: 11 U.S.C. § 510(a) makes a subordination agreement enforceable in bankruptcy, so what you concede in the intercreditor agreement you concede where it counts; and RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (2012) protects the credit bid against a plan under 11 U.S.C. § 1129 — unless you contracted it away.

Tool 1: Term sheet skeleton

BORROWER: [NewCo], a Delaware [corporation/LLC] HOLDINGS / PARENT GUARANTOR: [Holdings] SPONSOR: [] FACILITIES: · First Lien Term Loan: $[400]M, [7]-year maturity · Revolving Facility: $[75]M, [5]-year maturity [ABL or cash flow] · Second Lien Term Loan: $[150]M, [8]-year maturity · Incremental: free-and-clear $[]M or [100]% of LTM EBITDA, plus unlimited subject to [4.50]x First Lien Net Leverage PRICING: [SOFR + ]% with [] bps floor; OID [] MFN: [50] bps, applicable to incremental term loans, sunset [6] months AMORTIZATION: [1]% per annum, balance at maturity MANDATORY PREPAYMENTS: [50]% excess cash flow with step-downs to [25]% and [0]% at stated leverage levels; [100]% of asset sale proceeds above a threshold subject to [12]-month reinvestment; [100]% of non-permitted debt proceeds CALL PROTECTION: [101]% soft call on repricing for [6] months GUARANTORS: Holdings and each domestic wholly-owned Restricted Subsidiary, subject to Excluded Subsidiaries COLLATERAL: Substantially all assets; [65]% of voting equity of first-tier foreign subsidiaries; excluded assets per schedule — no exclusion for intellectual property FINANCIAL COVENANT: Revolver only; springing First Lien Net Leverage ≤ []x tested when utilization exceeds [35]% EQUITY CURE: No more than [2] in any four consecutive quarters and [4] over the life; cure amount [does not] reduce debt UNRESTRICTED SUBSIDIARIES: Designation permitted subject to pro forma leverage test and the Asset Blocker (see Tool 4) REQUIRED LENDERS: > [50]% of commitments and loans, excluding Defaulting Lenders and Borrower Affiliates SACRED RIGHTS: Standard, plus subordination of liens or claims; plus pro rata sharing unamendable without unanimity ASSIGNMENTS: Agent and (absent an Event of Default) Borrower consent, deemed given after [10] business days; Disqualified Institution list with affiliates AGENT: [__]

Tool 2: Certain funds conditions

The complete list, and nothing else, should condition an acquisition financing.

Conditions to Initial Funding. The obligation of the Lenders to fund on the Closing Date is subject solely to:

(a) execution and delivery of the Loan Documents by the Loan Parties, consistent in all material respects with the Term Sheet; (b) the accuracy in all material respects of (i) the Specified Representations and (ii) the Acquisition Agreement Representations, in each case only to the extent that a breach thereof gives the Buyer the right (without regard to notice or cure) to terminate its obligations under the Acquisition Agreement; (c) the consummation of the Acquisition substantially concurrently with the initial funding in accordance with the Acquisition Agreement, without any amendment or waiver materially adverse to the Lenders without their consent; (d) the absence of a Company Material Adverse Effect, as defined in the Acquisition Agreement; (e) delivery of the Required Financial Information; (f) payment of fees and expenses required to be paid on the Closing Date; and (g) solely to the extent that a security interest may be perfected by (i) the filing of a UCC financing statement or (ii) delivery of certificates evidencing the equity of the Borrower and each material domestic Restricted Subsidiary, the delivery of such filings and certificates. No other collateral or perfection requirement shall be a condition to the initial funding.

"Specified Representations" means representations relating to: organizational existence and power; due authorization, execution, and delivery; enforceability; no conflict with the organizational documents or applicable law; solvency on a consolidated basis after giving effect to the Transactions; margin regulations; the Investment Company Act; the PATRIOT Act and sanctions; and, subject to clause (g), creation of the security interests.

Why clause (g) is the most important sentence in the letter. It moves landlord waivers, control agreements, mortgages, and foreign collateral into a post-closing obligation. Without it, a single missing waiver can stop an acquisition closing.

Tool 3: Market flex

Market Flex. If the Arrangers determine that the Facilities cannot be successfully syndicated, the Arrangers may, after consultation with the Borrower and following a good-faith effort to syndicate for not fewer than [15] business days:

(a) increase interest rate margins by not more than [100] basis points on the First Lien Facilities and [200] basis points on the Second Lien Facility, provided that the weighted average increase across all Facilities shall not exceed [125] basis points; (b) increase OID or upfront fees by not more than [2.00]% on any Facility, with each [25] basis points of OID counted as [__] basis points of margin against the cap in clause (a); (c) increase any interest rate floor by not more than [50] basis points; (d) reallocate not more than $[50]M of commitments between the First Lien Term Loan and the Second Lien Term Loan; (e) shorten the maturity of any Facility by not more than [6] months and add amortization of not more than [1]% per annum;

and may not: (i) reduce the aggregate principal amount of the Facilities; (ii) change the covenant package, the Sacred Rights, the Financial Covenant level, or any Basket; (iii) impose any additional condition to funding; or (iv) exercise any of the foregoing more than once.

Sponsor drafting points, in order of value: cap the weighted average and not merely the per-facility movement; exclude covenant flex entirely; make the flex exhausted on first use; and require a genuine syndication effort period before it may be exercised.

Tool 4: The four provisions that decide restructuring outcomes

4.1 EBITDA add-back cap

Consolidated EBITDA shall include, without duplication, the amount of cost savings, operating expense reductions, synergies, and other operating improvements projected in good faith by the Borrower to result from actions taken, committed to be taken, or expected to be taken, provided that:

(a) the aggregate amount added back under this clause in any test period, together with all other pro forma adjustments, shall not exceed [20]% of Consolidated EBITDA for such period (calculated before giving effect to such add-backs); (b) such actions are taken, committed to be taken, or expected to be taken within [18] months of the relevant event; (c) such amounts are reasonably identifiable and factually supportable; and (d) to the extent the aggregate amount added back exceeds [10]% of Consolidated EBITDA, such amounts shall be certified by a nationally recognized accounting or consulting firm as reasonably identifiable, factually supportable, and reasonably likely to be realized.

Why this matters more than any covenant. Every ratio-based basket, incremental facility, and incurrence test runs through this definition. Uncapped add-backs make ratio-based capacity effectively unlimited.

4.2 Sacred rights — the lender-protective version

Notwithstanding anything to the contrary, no amendment, waiver, or consent shall, without the written consent of each Lender directly and adversely affected thereby:

(a) reduce or forgive the principal amount of, or the rate of interest or any fee payable on, any Loan; (b) postpone any scheduled date for payment of principal, interest, or fees, or extend any maturity date; (c) increase any Commitment of such Lender; (d) amend Section [] (Pro Rata Treatment and Payments), Section [] (Sharing of Payments), or any other provision requiring pro rata treatment of the Lenders, or otherwise permit any payment, prepayment, repurchase, exchange, or other treatment of any Loan on a non-pro-rata basis; (e) subordinate, or permit the subordination of, (i) any Lien securing the Obligations to any other Lien, or (ii) the Obligations in right of payment to any other Indebtedness, whether by the incurrence of any Indebtedness or Lien, the designation of any Indebtedness as senior, the amendment of any Loan Document, or otherwise; (f) release all or substantially all of the Collateral or all or substantially all of the value of the Guarantees, provided that for this purpose the release of Collateral or Guarantees representing more than [25]% of the aggregate value of the Collateral or Guarantees, measured over any period of [24] consecutive months, shall constitute a release of "substantially all"; or (g) amend the definition of "Required Lenders" or this Section.

Clauses (d), (e), and the proviso to (f) are the whole point. They cost nothing at signing and they are the entire defense against an uptier transaction.

4.3 Unrestricted subsidiary asset blocker

Notwithstanding any other provision of this Agreement and notwithstanding the availability of capacity under any Basket, no Loan Party or Restricted Subsidiary shall, directly or indirectly, sell, transfer, assign, contribute, license on an exclusive basis, or otherwise dispose of to any Unrestricted Subsidiary or to any Person that is not a Loan Party:

(a) any Material Intellectual Property (as defined below); (b) any asset or group of related assets that generated more than [5]% of Consolidated Revenue or Consolidated EBITDA for the most recently ended test period; (c) any equity interest in any Restricted Subsidiary owning any of the foregoing; or (d) any asset listed on Schedule [__] (Specified Assets).

"Material Intellectual Property" means [the registered trademarks, patents, and copyrights listed on Schedule [__]; the formulations, specifications, and manufacturing know-how relating to the [Products]; and any intellectual property that is material to the conduct of the business of the Loan Parties taken as a whole].

No designation of any Restricted Subsidiary as an Unrestricted Subsidiary shall be permitted if such Subsidiary owns any asset described above.

Note the drafting move. The blocker operates regardless of basket capacity, which is what defeats a drop-down assembled from combined baskets.

4.4 Open market purchase definition

"Open Market Purchase" means a purchase of Term Loans by the Borrower or any Affiliate effected: (a) through a broker or dealer in a transaction in which the seller is not known to the purchaser to be the Borrower or an Affiliate at the time the price is agreed; or (b) pursuant to a Dutch auction conducted in accordance with Exhibit [__], offered to all Term Lenders of the applicable Class on identical terms. No purchase, exchange, or repayment of Term Loans by the Borrower or any Affiliate, or any transaction having the economic effect thereof, shall be permitted other than an Open Market Purchase or a pro rata prepayment.

Tool 5: Incremental facility

Incremental Amount. The Borrower may incur Incremental Term Loans and Incremental Revolving Commitments in an aggregate amount not to exceed the sum of:

(a) the Free and Clear Amount: the greater of $[__] and [100]% of Consolidated EBITDA for the most recently ended test period; plus (b) all amounts previously prepaid or commitment reductions previously effected with respect to the Facilities; plus (c) an unlimited amount, provided that on a pro forma basis the First Lien Net Leverage Ratio does not exceed [the closing date ratio] (and not, as sponsors sometimes propose, the ratio then permitted under the financial covenant).

Conditions. (i) No Event of Default; (ii) maturity no earlier than the existing Term Loans and weighted average life no shorter; (iii) if secured, secured pari passu or junior to the existing Obligations and not senior; (iv) subject to the Intercreditor Agreement; and (v) MFN: if the all-in yield on any Incremental Term Loan incurred within [12] months exceeds the all-in yield on the existing Term Loans by more than [50] basis points, the yield on the existing Term Loans shall be increased so that the difference does not exceed [50] basis points.

Two lender points. Test the ratio against the closing date level rather than the covenant level, and keep the MFN sunset at twelve months rather than six.

Tool 6: Intercreditor terms

Standstill.

Until the expiration of the Standstill Period, no Second Lien Secured Party shall exercise or seek to exercise any right or remedy with respect to any Shared Collateral, or institute any action or proceeding with respect thereto. The Standstill Period begins on the date the Second Lien Agent delivers written notice of the commencement of an Enforcement Action to the First Lien Agent and ends [150] days thereafter, provided that the Standstill Period shall be tolled during any period in which the First Lien Secured Parties are diligently pursuing an Enforcement Action.

Notwithstanding the foregoing, the Second Lien Secured Parties may at any time: (a) file a proof of claim; (b) vote on any plan of reorganization in any manner not inconsistent with this Agreement; (c) file any pleading in opposition to a claim objection or other motion adverse to their claims; (d) exercise rights as unsecured creditors to the extent their claims are not secured; (e) seek adequate protection in the form of a replacement lien on the same collateral with the same relative priority; and (f) take action necessary to preserve or protect the validity, perfection, or enforceability of their Liens.

Bankruptcy waivers — with the caps a junior class should insist on.

The Second Lien Secured Parties shall not object to: (a) any sale of Shared Collateral under 11 U.S.C. § 363 supported by the First Lien Required Lenders, provided that the Liens attach to proceeds with the same relative priority and the sale is not a credit bid by the First Lien Secured Parties in an amount less than []; (b) any use of cash collateral or DIP financing consented to by the First Lien Required Lenders, provided that the aggregate principal amount of the DIP financing plus the First Lien Obligations does not exceed the DIP Cap of $[]; or (c) any motion for relief from stay supported by the First Lien Secured Parties.

Purchase option.

Within [20] business days after the earliest of (i) acceleration of the First Lien Obligations, (ii) commencement of an Enforcement Action, and (iii) an Insolvency Proceeding, the Second Lien Secured Parties may, by irrevocable written notice, elect to purchase all (but not less than all) of the First Lien Obligations at par plus accrued interest and fees, without premium, closing within [10] business days.

Credit bidding.

The First Lien Secured Parties may credit bid the First Lien Obligations. The Second Lien Secured Parties may credit bid the Second Lien Obligations only if the First Lien Obligations are paid in full in cash concurrently with the consummation of such credit bid [or, in the junior-favorable version: may credit bid the Second Lien Obligations in any sale in which the First Lien Secured Parties do not credit bid].

Amendments to the senior documents.

Without the consent of the Second Lien Required Lenders, the First Lien Documents shall not be amended to: (a) increase the aggregate principal amount above the First Lien Cap of $[] plus []%; (b) extend the final maturity beyond [date]; (c) increase the applicable margin by more than [__] basis points; or (d) add or increase any prepayment premium.

Tool 7: Lender cooperation agreement outline

Assemble before a transaction is announced, not after.

1. Parties and holdings. Each Party represents its holdings by Class and principal amount as of the date hereof.

2. Minimum threshold. This Agreement becomes effective when Parties holding not less than [33⅓]% of the [First Lien Term Loans] have executed it, and terminates automatically if holdings fall below [25]%.

3. Standstill on non-pro-rata transactions. No Party shall participate in, consent to, vote in favor of, or provide any new money in connection with, any Transaction that is not offered to all Lenders of the same Class on a pro rata basis on identical terms. "Transaction" includes any exchange, uptier, drop-down, priming financing, non-pro-rata repurchase, or amendment permitting any of the foregoing.

4. Transfer restrictions. No Party shall transfer any Loans except to a transferee that executes a joinder and becomes bound hereby.

5. Common representation. The Parties shall engage [counsel] and [financial adviser] to act on behalf of the Group; fees shared pro rata pending reimbursement.

6. Information. [Restricted / Non-Restricted subgroups; MNPI protocol; cleansing commitment to be obtained from the Borrower with a deadline before any Party becomes Restricted.]

7. Decision-making. Actions of the Group require the consent of Parties holding [66⅔]% of Group holdings.

8. Confidentiality; term; termination events; no fiduciary duties among Parties; no agreement to vote on any plan of reorganization (drafted with securities and bankruptcy solicitation constraints in view).

Tool 8: Post-closing tracker

Two rules. Every row has a named person, not a firm. And the tracker is reviewed at a standing meeting until every row is confirmed — not until the deadline passes.

Tool 9: Compliance certificate review sheet

Received quarterly. Reviewed, not filed.

Escalate immediately on: any unrestricted subsidiary designation; add-backs above the certification threshold without certification; utilization managed just below the springing trigger for three consecutive quarters; or a change in the EBITDA computation methodology.

Tool 10: Consent request package

[Agent] — LENDER CONSENT REQUEST — [Borrower] Credit Agreement dated [__]

1. What is being amended. [Plain description, section by section, with a blackline attached.] 2. Required consent threshold. ☐ Required Lenders ☐ Affected Class ☐ Each affected Lender — with the provision of the Credit Agreement that establishes it cited. 3. Four questions, answered by the Agent: (a) Does this amendment create capacity for Indebtedness or Liens senior to, or pari passu with, the existing Obligations? ☐ Yes ☐ No (b) Does it modify any pro rata sharing or payment provision, or permit non-pro-rata treatment? ☐ Yes ☐ No (c) Does it permit the designation of any Subsidiary as an Unrestricted Subsidiary, or the transfer of assets outside the Loan Party group? ☐ Yes ☐ No (d) Does it modify the definition of Required Lenders or the Sacred Rights provision? ☐ Yes ☐ No 4. Consideration. Consent fee of [__] bps payable to consenting Lenders returning signature pages by [deadline]. 5. Deadline and mechanics. Signature pages to [address] by [date/time]; the amendment becomes effective on confirmation of the threshold.

Attachments: blackline; amendment; officer's certificate; pro forma covenant calculations.

For a lender receiving this: if the answer to any of the four questions is "Yes," read the blackline yourself before consenting, whatever the summary says.

Related documents

• Syndicated Credit Facilities and Intercreditor Arrangements: Agents, Lenders, and Priority
• Closing and Administering a Syndicated Credit Facility: A Practical Guide
• Syndicated Loan Documentation Checklist: A Practical Checklist
• Commercial Loan Agreements: Covenants, Defaults, and What Borrowers Should Negotiate
• Debt Restructuring and Workout Toolkit
• Secured Transactions Under UCC Article 9: Attachment, Perfection, and Priority

This toolkit is general information, not legal advice, and does not create an attorney-client relationship. Adapt every provision to the transaction and to current market terms.