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Credit agreement and indenture

The Credit Agreement (for warehouse facilities) or Indenture (for term securitizations) is the governing document. It establishes who owes what to whom, when payments happen, and what triggers default. Every other document in the stack references it.

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When each applies

Structure	Governing Document	Key Difference
Warehouse facility	Credit Agreement	Direct lending relationship; capital provider has direct workout rights
Private placement	Credit Agreement or Note Purchase Agreement	Similar to warehouse but may have lighter covenants
Term ABS (rated)	Indenture + Trust Agreement	Trustee sits between issuer and investors; actions require trustee direction
CLO	Indenture	Collateral manager has discretion within defined parameters

The distinction matters for enforcement. Under a credit agreement, the lender can act directly. Under an indenture, the trustee must act, typically upon direction from a specified percentage of noteholders. This adds procedural steps but also provides protection since a single creditor cannot act unilaterally.

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Commitment and availability

The commitment section defines what you can actually borrow and when. This is where term sheet economics become operational reality.

Key provisions

Provision	What It Governs	Negotiation Focus
Maximum commitment	Total facility size	Higher is better; negotiate accordion option
Initial commitment	Starting amount before ramp	Align with realistic origination timeline
Availability period	How long you can draw	Minimum 18-24 months for new asset classes
Conditions precedent	Requirements for each draw	Minimize subjective conditions
Minimum draw size	Smallest permitted borrowing	Keep low ($500K-$1M) for operational flexibility
Draw frequency	How often you can borrow	Daily or weekly preferred

What the term sheet does not tell you

A $100M commitment with a 60-day ramp period and 10 conditions to each draw is worth less than a $75M commitment available on 2 days’ notice. Evaluate:

Ramp requirements. Some facilities require you to fund 25% of commitment within 90 days or face commitment reduction. If your origination pipeline is lumpy, this creates pressure to fund suboptimal assets.

Conditions precedent to draws. Every draw typically requires:

Updated borrowing base certificate showing availability
No Default or Event of Default exists
Representations remain true
No Material Adverse Change

The last two are subjective. Push for specificity on what constitutes a rep breach or MAC that blocks draws.

Administrative burden. If each draw requires 5 days’ notice, trustee confirmation, and 15 pages of documentation, you lose flexibility. Negotiate for same-day or next-day draws with streamlined documentation.

Sample negotiation language

Subjective MAC blocking draws:

Problematic: “No Material Adverse Change shall have occurred since the Closing Date.”

Better: “No Material Adverse Change (as defined in Section X, limited to [specific objective triggers]) shall have occurred since the Closing Date.”

Silent commitment reduction:

Problematic: “If Borrower fails to fund at least $25,000,000 within 90 days of Closing, Commitment shall automatically reduce to the amount then outstanding.”

Better: “If Borrower fails to fund at least $25,000,000 within 90 days of Closing, Commitment may, upon 30 days’ written notice from Administrative Agent, be reduced to [X]; provided that Borrower may avoid such reduction by funding such shortfall within such notice period.”

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Interest and fees

Interest provisions seem straightforward until you read the calculation mechanics.

Standard provisions

Component	Market Standard	Watch Out For
Base rate	SOFR (1M or 3M)	Legacy LIBOR fallback language
Credit spread	200-500 bps depending on asset class	Spread step-ups buried in schedules
Default interest	+200-300 bps	Automatic vs. notice-triggered
Commitment fee	25-50 bps on undrawn	Calculated on total vs. unfunded only
Unused fee	0-25 bps additional	Duplicative with commitment fee
Exit fee	0-100 bps	Applies to prepayment or only natural runoff

Calculation conventions

Day count conventions affect your actual cost:

Actual/360: Most common for credit agreements. You pay interest on actual days elapsed divided by 360. This means you pay approximately 1.4% more than quoted over a year.
30/360: Each month is 30 days, year is 360. More predictable but less common.
Actual/365: Most accurate to calendar time. Common in UK documentation.

The difference between Actual/360 and Actual/365 on a $100M facility at SOFR + 300 bps is roughly $8,000-$10,000 annually.

Default interest negotiation

Default interest should only apply after notice and expiration of any cure period, not automatically upon a technical default.

Problematic language: “Upon the occurrence of an Event of Default, all outstanding Obligations shall bear interest at the Default Rate.”

Better language: “Upon the occurrence and during the continuance of an Event of Default, following written notice from Administrative Agent to Borrower specifying such Event of Default and the expiration of any applicable cure period, all outstanding Obligations shall bear interest at the Default Rate.”

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Events of default

This is where the document can hurt you most. A typical credit agreement has 15-25 events of default.

Standard events and negotiation points

Event	Standard Protection	What to Negotiate
Payment default	3-5 business day grace period	Expand to 5 days; exclude wire transfer delays
Financial covenant breach	30-day cure period for most	Equity cure rights; rolling test periods
Performance trigger breach	Often no cure	Cure period of 30-60 days; notification instead of default
Rep breach	Material breach standard	Materiality qualifiers; knowledge qualifiers
Material adverse change	Subjective	Objective triggers only; require actual demonstrable impact
Cross-default	Acceleration of other debt	Threshold ($X or more); exclude certain debt
Change of control	50% ownership change	Define control more specifically; carve out internal reorganizations
Servicer default	Linked to SSA	Independent definition concerns; cure alignment
Judgment	Any judgment	Threshold amount ($X or more); exclude insured claims
ERISA	Any liability	Threshold; covered by insurance
Regulatory	Loss of any license	Material licenses only; cure period

Critical protection: notice and cure

Every event of default should require:

Written notice specifying the default
Reasonable cure period (minimum 30 days for non-payment defaults)
Failure to cure before acceleration becomes effective

Silent acceleration is unacceptable. Language like “upon the occurrence of an Event of Default, all Obligations shall automatically become due and payable” means you can be in technical default without knowing it.

Required language: “Upon the occurrence and during the continuance of an Event of Default, upon written notice from the Administrative Agent to the Borrower (which notice shall specify the Event of Default and, if applicable, any remaining cure period), the Commitments shall terminate and all Obligations shall become immediately due and payable.”

Material adverse change

MAC clauses are the most dangerous subjective trigger.

MAC Language	Risk Level	Typical Usage
”Any event that, in the lender’s sole judgment, constitutes a MAC”	Extreme	Never accept
”Any event that, in the lender’s reasonable judgment, constitutes a MAC”	High	Push for objective standards
”Any event that has resulted in a Material Adverse Effect as defined in Schedule X”	Moderate	Review Schedule X carefully
”MAC limited to [specific events]“	Lower	Preferred

Negotiate for objective standards. Acceptable MAC triggers might include: bankruptcy of a key counterparty, loss of material licenses, violation of law resulting in material liability, or breach of financial covenants. Unacceptable: “decline in business prospects” or “adverse market conditions.”

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Amendment and waiver

Who can amend the documents and under what circumstances matters enormously when you need flexibility later.

Standard thresholds

Amendment Type	Typical Threshold	Practical Reality
Administrative (dates, addresses, clerical)	Agent alone	Easy; usually 5-10 business days
Non-material	Majority lenders (50%+)	Achievable with good relationship
Material (advance rates, covenants, triggers)	Supermajority (66.67% or 75%)	Requires broad consensus; 2-4 weeks
Fundamental (commitment reduction, maturity extension, subordination)	Unanimous	Extremely difficult; one holdout blocks

What to negotiate

Define “material” specifically. Vague definitions mean everything arguably requires supermajority consent. Push for a list of what constitutes material amendments.

Exclude certain amendments from unanimity. If you have a single difficult lender, unanimous consent requirements become a blocking right. Try to limit unanimity to true fundamentals: maturity extension affecting their piece, reduction of their commitment, subordination of their payment priority.

Negative consent for administrative changes. “Unless Administrative Agent receives objection within 10 business days, the following amendments shall be deemed approved” speeds up minor changes.

Snooze/lose provisions. Lenders who do not respond within X days are deemed to have consented (for non-fundamental amendments). This prevents minority blocking through inaction.

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Common pitfalls

Sole discretion on eligibility

If the capital provider has “sole discretion” to determine whether an asset is eligible, they can effectively shut down your facility by deeming new originations ineligible.

Problematic: “The Administrative Agent shall determine, in its sole discretion, whether any Asset satisfies the Eligibility Criteria.”

Better: “Eligibility shall be determined in accordance with the Eligibility Criteria set forth in Schedule X. The Administrative Agent shall not unreasonably withhold a determination that an Asset meeting such objective criteria is Eligible.”

Unilateral assignment

If the capital provider can assign its commitment to anyone without your consent, you may end up with a counterparty you don’t want to work with.

Standard market: Assignment to affiliates freely; assignment to others requires borrower consent, not to be unreasonably withheld. Some agreements add: “consent not required if Event of Default has occurred and is continuing.”

Conflicting defined terms

The credit agreement defines “Servicer Default” one way. The servicing agreement defines it differently. Which controls?

Fix before signing: Create a defined terms concordance. Wherever a term is defined in multiple documents, ensure consistency or specify which controls.

Hidden discretion

Search the document for “sole discretion,” “absolute discretion,” “in its judgment,” and “may determine.” Each instance is a potential area where the capital provider has unchecked authority. Push back on the most consequential ones.

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Review checklist

Before signing, verify: