Structuring Exit Financing Packages

---
name: structuring-exit-financing-packages
description: Designs emergence financing structures with exit term loans, ABL facilities, and capital structure optimization for reorganized entities. Use when structuring exit financing, analyzing emergence capital needs, or comparing financing alternatives.
tags:
  - distressed-and-restructuring
metadata:
  author: casemark
  practice_areas:
    - Restructuring
    - Distressed Investing
    - Turnaround
  document_types:
    - Report
  skill_modes:
    - Analysis
---
# Structuring Exit Financing Packages

Designs emergence financing structures combining exit term loans, ABL revolvers, and other capital instruments to optimize the post-reorganization balance sheet for a Chapter 11 debtor emerging from bankruptcy.

## When To Use

- Debtor or plan sponsor needs to secure committed financing to fund a plan of reorganization
- Evaluating whether an exit term loan, ABL facility, rights offering, or combination best fits the reorganized entity's cash flow and collateral profile
- Comparing competing exit financing proposals from lender groups or backstop parties
- Sizing emergence liquidity to cover plan distributions, professional fees, working capital, and adequate reserves
- Assessing whether existing DIP financing can roll into exit facilities vs. requiring full refinancing

## Inputs To Gather

- **Plan of reorganization** (or latest draft) — distribution waterfall, effective date conditions, cash requirements at emergence
- **Reorganized business plan** — projected revenue, EBITDA, capex, and working capital needs for 3–5 years post-emergence
- **Collateral analysis** — borrowing base detail (eligible receivables, inventory, equipment, IP), appraisals, and lien structure
- **DIP facility terms** — outstanding balance, maturity, conversion or rollover provisions, fees
- **Commitment letters / term sheets** — from prospective exit lenders or backstop parties
- **Disclosure statement financial projections** — including plan feasibility analysis and liquidation comparison
- **Claims and equity structure** — recovery estimates by class, new equity allocation, management incentive plan dilution
- **Market comparables** — recent emergence financings in the same industry or similar size/credit profile

## Workflow

1. **Size emergence cash needs** — Map every cash use at or around the effective date: plan distributions (cash to creditors), cure payments on assumed contracts, professional fee escrow, wind-down reserves, minimum operating cash, and any cash trap or reserve requirements from lenders.

2. **Assess collateral and borrowing capacity** — Build or review the ABL borrowing base (advance rates on receivables, inventory categories, reserves). Determine first-lien vs. second-lien capacity on hard assets and enterprise value. Identify any collateral gaps that require unsecured or mezzanine tranches.

3. **Design the capital structure** — Layer the exit facilities:
   - **ABL revolver** — sized to working capital volatility; typical advance rates of 85% on eligible receivables and 50–70% on inventory [VERIFY against current market terms]
   - **Exit term loan (first lien)** — sized to total leverage target, often 2.5–4.0x net leverage at emergence depending on industry
   - **Second lien / unsecured notes** — if incremental capital is needed beyond first-lien capacity
   - **Rights offering or equity backstop** — to fill any remaining gap and demonstrate plan feasibility
   - Target total leverage, secured leverage, and interest coverage ratios that satisfy both lender covenants and Bankruptcy Court feasibility standards under §1129(a)(11)

4. **Evaluate key terms and covenants** — Compare proposals across:
   - Pricing (spread, OID, LIBOR/SOFR floor) [VERIFY benchmark rate conventions]
   - Financial maintenance covenants vs. incurrence-only covenants
   - Mandatory prepayment triggers (excess cash flow sweep, asset sale proceeds)
   - Call protection and repricing provisions
   - Governance provisions — permitted investments, restricted payments, EBITDA add-backs
   - Conditions precedent to funding (confirmation order, effective date deliverables)

5. **Run scenario and sensitivity analysis** — Stress-test the proposed structure against downside cases:
   - Revenue shortfall (e.g., 10–20% miss to plan)
   - Working capital swings reducing ABL availability
   - Capex overruns or delayed synergies
   - Rising base rates on floating-rate debt
   - Assess covenant headroom in each scenario and identify the tightest constraint

6. **Prepare financing comparison matrix** — If multiple proposals exist, present a side-by-side comparison of sizing, pricing, covenants, flexibility, and execution certainty. Highlight trade-offs (e.g., tighter covenants but lower cost vs. looser covenants at a premium).

7. **Draft exit financing summary** — Consolidate findings into a report suitable for the debtor's board, plan sponsor, or Bankruptcy Court disclosure.

## Output

The deliverable should include:

- **Executive summary** — Recommended exit capital structure with total facility sizes, blended cost of capital, and key rationale
- **Sources and uses table** — All emergence funding sources mapped against every cash use at the effective date
- **Capital structure summary** — Each tranche (ABL, term loan, notes, equity) with size, rate, maturity, collateral, and key covenants
- **Financing comparison matrix** (if applicable) — Side-by-side of competing proposals
- **Sensitivity / scenario table** — Leverage, coverage, and liquidity metrics under base, upside, and downside cases
- **Covenant compliance forecast** — Projected maintenance covenant compliance for at least 8 quarters post-emergence
- **Key risks and mitigants** — Execution risk, market risk, refinancing risk, and operational risks to the structure
- **Open items and conditions precedent** — Outstanding diligence, regulatory approvals, or confirmation-order conditions

## Quality Checks

- Confirm sources and uses balance to the dollar — no unexplained gaps
- Verify that projected leverage and coverage ratios at emergence and through the projection period satisfy both lender term sheets and §1129(a)(11) feasibility requirements [VERIFY applicable Bankruptcy Code provisions for non-U.S. proceedings]
- Cross-check borrowing base against the most recent collateral appraisals and field exam reports
- Ensure DIP-to-exit conversion or refinancing mechanics are consistent between the DIP credit agreement and the exit commitment letter
- Validate that all plan distribution amounts tie to the disclosure statement and claims analysis
- Flag any SOFR/LIBOR transition issues or benchmark rate mismatches across facilities [VERIFY]
- Confirm that the proposed structure does not trigger unintended tax consequences (e.g., cancellation of debt income, ownership change limitations under IRC §382) — escalate to tax counsel if uncertain
- Review intercreditor terms if multiple secured tranches exist — ensure lien priority, turnover, and enforcement standstill provisions are clear