Starting from the basic building blocks, a “basket” is an agreed exception to a negative covenant in a loan.
What does basket mean in finance?
This term has several meanings. In the context of: Finance, "basket" is business jargon for a maximum dollar amount for a specific exception to a covenant restriction in a financing agreement. For example, a loan agreement may limit the borrower's ability to incur debt but permit it to incur up to $5 million in letters of credit.
What is an example of a debt basket?
For example, a loan agreement may limit the borrower's ability to incur debt but permit it to incur up to $5 million in letters of credit. The $5 million is referred to as a debt "basket."
What is a basket in mergers and acquisitions?
Mergers and acquisitions, an indemnification concept limiting a party's obligation regarding small claims. A basket provides that an indemnifying party does not have an obligation to indemnify until the amount of the indemnified party's losses exceed a certain agreed amount.
What is a credit agreement in banking?
Credit Agreement. What is 'Credit Agreement'. A credit agreement is a legally binding contract documenting the terms of a loan agreement. The credit agreement outlines all of the terms associated with the loan. BREAKING DOWN 'Credit Agreement'. A credit agreement is created for both retail and institutional lending.
What is a starter basket credit agreement?
GENERAL BASKET In a building basket (or ratio-based basket), a "starter amount" is sometimes made available that permits the borrower to make restricted payments up to a fixed dollar amount even before the basket has begun to build (or without meeting the financial ratio test).
What is a basket loan?
What is the purpose of the loan "basket?" The "basket" was developed to help ease the "credit crunch" by encouraging banks to make small business and farm loans which they might not otherwise have made because of potential regulator criticism over lack of documentation.
What is a general basket?
More Definitions of General Debt Basket General Debt Basket means Indebtedness in an aggregate amount not to exceed $20,000,000 at any time outstanding.
What are the parts of a credit contract?
The core elements include: Parties, Permitted Loan Amount, Payment, Interest Rate, Maturity Date, Default, Security Interest, Collateral, Warranties, Termination and Survival. Some examples of additional clauses include Notice, Amendments, Cure Period, Expenses, Arbitration and Indemnification.
What is a free and clear basket?
The “free and clear” basket is a fixed amount that the borrower is permitted to incur without having to demonstrate pro forma compliance with a financial ratio.
What are baskets investment?
A basket is a collection of multiple securities (e.g., stocks, currencies, etc.) which have a similar theme or share certain criteria. For instance, a sector exchange traded fund (ETF) may contain a basket of stocks that are all in the same industry.
What is an inside maturity basket?
Inside Maturity Basket means Indebtedness consisting of, at the Borrower's option, any combination of Refinancing Notes, New Loan Commitments, Incremental Equivalent Debt, Permitted Debt Exchange Notes, Specified Refinancing Debt, Ratio Debt, Ratio Acquisitions Debt and Refinancing Indebtedness, equal to, when taken ...
How do you calculate debt covenant?
It is calculated by dividing EBITDA by annual principal plus interest payments of the loan. A ratio of 3:1 typically is a good ratio to have. Anything less and a borrower could begin to have problems meeting their debt obligations.
How do Builder baskets work?
Builder baskets The idea behind a builder basket is to reward the borrower for its improved financial performance, by allowing an increase of the basket(s) in certain restrictive covenants (e.g. restricted payments or investment covenants).
How do you read a credit agreement?
How to Read a Credit AgreementTitle page. Here you'll find info such as the closing date of the loan, name of the borrower (legal entity), and the agent banks on the loan.Table of contents.Recitals. ... Definitions. ... Amount and terms of the credits. ... Representations and warranties. ... Conditions. ... Affirmative covenants.More items...•
What are the types of credit agreements?
Credit TransactionsA pawn transaction.A discount transaction.An incidental credit agreement.An instalment agreement.A mortgage agreement.A secured loan.A lease of movable property and.Any other agreement where payment of an amount owed is deferred and interest or fees are charged.
What are types of credit arrangements?
There are a variety of credit arrangements ranging from credit cards, overdraft facilities, purchase agreements, and personal loans.
What is an available amount basket?
The “builder basket” concept, typically defined as a “Cumulative Credit” or an “Available Amount”, represents an amount the borrower can utilise for investments, restricted payments (as discussed below), debt prepayments or other purposes.
What is the collateral in a blanket mortgage?
A blanket mortgage is a single mortgage that covers multiple properties, with the group of assets serving as collateral for the loan. Real estate developers and larger investors often purchase more than one property at a time, so a blanket mortgage allows them to simplify those transactions with one loan.
What is a consolidated mortgage?
A mortgage that one takes out in order to pay off two or more mortgages. The mortgages may or may not be for the same piece of property. A mortgage holder may take out a consolidated mortgage to lower monthly payments or for some other reason.
What Is a Basket?
A basket is a collection of multiple securities (e.g. , stocks , currencies , etc.) which have a similar theme or share certain criteria. For instance, a sector exchange traded fund (ETF) may contain a basket of stocks that are all in the same industry.
What is a basket order in DJIA?
The trader sets up a basket order to buy all the DJIA stocks with market-buy-on-close order. This order type, and the basket, allows all the trades to execute simultaneously at the closing bell.
Why do you use basket orders?
A retail trader may wish to use a basket order if they need to do multiple trades and don't want to execute them one by one. They also may want to use a basket order if they need to buy/sell two different securities at exactly the same time, such as with a pairs trade (buy one stock and short another) or with a covered call ...
Why do institutional traders use basket orders?
Just like with stocks, institutional traders may need to execute large volumes in multiple currency pairs quickly . A basket order helps them to accomplish this.
What is basket trading?
Because of the program element, baskets are commonly part of program trading strategies and are used by institutional traders, hedge funds, mutual funds, and exchange-traded funds (ETFs) to quickly and effectively (as possible) alter their portfolio allocations. Most retail brokers also allow an individual to create baskets and basket orders .
What is a basket of stocks?
Traders will sometimes refer to collections of stocks as baskets. For example, an index fund is a basket of stocks that all meet certain criteria. A currency basket holds multiple currencies. There are other baskets that may hold only certain types of assets, such as stocks from a certain sector, or futures contracts that align with a certain strategy.
What is index fund?
An index fund is a basket of stocks that all meet certain criteria. Indexes, and index funds, need to constantly adjust the portfolio so it holds only stocks that meet the criteria and also that those stocks are held in the proper weight. As stocks rise and fall, their weight within the portfolio changes daily.
What are Indemnification Baskets and What Types are Common?
Indemnification Baskets: Many small market transactions also include a ‘basket’ of some kind.
What are representations and warranties?
Representations and Warranties: In the legal documents for a small business acquisition, a seller will make certain representations and warranties regarding the business.
What is basket cap?
Baskets and caps are a mechanism for buyers and sellers to establish dollar thresholds related to the representations and warranties made by a seller about the business.
What is an indemnification cap?
An indemnification ‘cap' limits the overall liability of the seller to some dollar amount and an indemnification ‘basket' establishes a threshold under which the buyer cannot make a claim against the seller.
What is a true basket?
A ‘true basket’ (also sometimes called a ‘deductible basket’) means the seller cannot make a claim for indemnification until the total amount of losses exceeds the basket, and then only for the amount of loss in excess of the basket.
What does a seller do in a small business acquisition?
In the legal documents for a small business acquisition, a seller will make certain representations regarding the business. You can read more about
How much can a buyer sue for indemnification?
In this case, the buyer can pursue an indemnification claim up to the indemnification cap of $2.5 million and subject to the type of basket.
What Is a Credit Agreement?
A credit agreement is a legally-binding contract documenting the terms of a loan agreement; it is made between a person or party borrowing money and a lender. The credit agreement outlines all of the terms associated with the loan. Credits agreements are created for both retail and institutional loans. Credit agreements are often required before the lender can use the funds provided by the borrower.
What is institutional credit?
Institutional credit deals also include both revolving and non-revolving credit options. However, they are much more complicated than retail agreements. They may also include the issuance of bonds or a loan syndicate, which is when multiple lenders invest in a structured lending product.
What is a revolving credit account?
Revolving credit accounts typically have a more simplified application and credit agreement process than non-revolving loans. Non-revolving loans–such as personal loans and mortgage loans–often require a more extensive credit application. These types of loans typically have a more formal credit agreement process.
What happens after Sarah reads the credit agreement?
After Sarah has read the credit agreement thoroughly, she agrees to all the terms outlined in the agreement by signing it. The lender also signs the credit agreement; after the signing of the agreement by both parties, it becomes legally binding.
When is a credit agreement considered effectual?
This process may require the credit agreement to be signed and agreed upon by both the lender and the customer in the final phase of the transaction process; the contract is considered effectual only after both parties have signed it. Institutional credit deals also include both revolving and non-revolving credit options.
How much does Sarah pay on her car loan?
Sarah takes out a car loan for $45,000 with her local bank. She agrees to a 60-month loan term at an interest rate of 5.27%. The credit agreement says that she must pay $855 on the 15th of every month for the next five years. The credit agreement says that Sarah will pay $6,287 in interest over the life of her loan, and it also lists all the other fees pertaining to the loan (as well as the consequences of a breach of the credit agreement on the part of the borrower).
What college did Thomas Brock graduate from?
She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College. Thomas Brock is a well-rounded financial professional, with over 20 years of experience in investments, corporate finance, and accounting.
What is restricted payment covenant?
Some restricted payments covenants allow for some types of transactions that increase the equity value of the credit group to provide capacity for restricted payments that remove up to an equivalent amount of value from the group. For example, proceeds of an equity issuance or a cash equity contribution may be used to make restricted payments. Sometimes the restricted payment must be made concurrently with, or within a specified period after, the equity issuance or contribution. Lender's counsel should ensure that these baskets do not result in double-counting. For instance, if an equity issuance creates restricted payment capacity under such a basket, it should not then also count toward an expander of the general-use building basket.
What is a customary basket?
Where a direct or indirect parent company of the borrower depends on the borrower's cash flow to defray some or all of its expenses, certain customary baskets allow the borrower to upstream funds to the parent for that purpose , for example:
Examples of General Debt Basket in a sentence
The Company will have the option to defer interest for two years on the re-instated debt of $100 million and the flexibility to incur additional financing of up to $45 million through the use of the Super Senior Debt Basket and the General Debt Basket.
More Definitions of General Debt Basket
General Debt Basket means Indebtedness in an aggregate amount not to exceed $20,000,000 at any time outstanding.
Examples of Builder Basket in a sentence
If more than one action occurs on any given date the permissibility of the taking of which is determined hereunder by reference to the amount of the FFO Builder Basket immediately prior to the taking of such action, the permissibility of the taking of each such action shall be determined independently and in no event may any two or more such actions be treated as occurring simultaneously..
More Definitions of Builder Basket
Builder Basket shall have the meaning provided in clause (a) (i) of the definition of “ Available Amount ”.
What is the difference between a grower basket and a scalable basket?
The two key points of difference from a grower basket is that (i) scalable baskets do not grow organically with EBITDA; they require a threshold to be met (e.g. EBITDA must have grown by 5% against projected EBITDA) at which point the basket level will “jump” and (ii) the required growth in EBITDA may be tied to projected EBITDA performance in the base case model rather than measuring it as an increase to the previous fiscal period EBITDA numbers.
What is scalable basket?
A “scalable” basket is a hard cap basket which has the ability to increase or decrease by the same percentage as EBITDA increases or decreases against historical EBTIDA performance or projected EBITDA performance in the base case model for that testing period, above a certain threshold. For example, if EBITDA of the Borrower Group exceeds or has not achieved (as the case may be) projected EBITDA by more than 5%, a scalable basket shall increase or decrease by the same proportion that EBITDA has increased or decreased against projected EBITDA.
What happens to the quantum of a grower basket?
Since grower baskets are formulated based on a “greater of” concept, if the growth component initially increases but then later decreases, the quantum of the basket will also decrease but only ever back down to the hard-cap amount. Since grower baskets are included in incurrence style covenant packages, which only test baskets at the time they are utilised, if a grower basket subsequently reduces in size (for example, down to the hard-cap amount), any historical utilisation of the basket at the higher level will be grandfathered.
What is a builder basket?
What is a builder basket? A “builder” basket is a basket that traditionally “builds” following the signing of the facility agreement based on the performance of the Borrower Group through either retained Excess Cash Flow or 50% of Consolidated Net Income. Builder baskets are also referred to in the US as an “Available Amount” or “Cumulative Credit” basket. The availability under a builder basket can typically be used for restricted payments, investments and payments of junior secured/second lien, unsecured or subordinated indebtedness that would otherwise be restricted by the respective negative covenants (these are essentially the negative covenants that restrict cash leakage out of the Borrower Group by way of distributions to equity holders, third party investments or repayment of junior/second lien, unsecured or subordinated debt). It is not uncommon for there to be a requirement that the Borrower Group has de-levered sufficiently to meet a reduced leverage or fixed charge cover test before amounts from the builder basket can be used, particularly where the basket is being used to make a dividend, and event of default blocks also sometimes apply.
What is basket in finance?
A general basket is often expressed as subject to limits based on a fixed amount (which is also known as a “hard cap” (e.g., not to exceed €50,000,000)), a percentage of a specified variable (e.g., Total Assets, EBITDA, Consolidated Net Income, Equity Contributions, retained Excess Cash Flow) and/or compliance with certain financial covenant metrics (e.g., a “ratio” basket, commonly requiring compliance with a leverage or fixed charge coverage ratio).
Is there a uniform approach to scalable baskets?
As with grower baskets in European transactions, there has been no uniform approach as to which negative covenants scalable baskets will feature. It is also important to note that the scalable basket concept appears to primarily be a feature of the mid-market.
Is the European market consistent with grower baskets?
On the other hand, the European market has developed a less than consistent approach to the use of grower baskets, with no uniformity from deal to deal as to which covenants grower baskets will feature in, particularly as they apply in covenanted deals.
