Identify Term Sheet Issues

---
name: identify-term-sheet-issues
task_id: banking-finance/identify-term-sheet-issues
description: Reviews a term sheet and related engagement materials for a leveraged acquisition financing from the borrower or sponsor side, and produces a prioritized issues memo with severity classifications and suggested negotiation points.
activates_for: [planner, solver, checker]
---

# Skill: Term Sheet Issues Memo — Leveraged Acquisition Financing (Borrower/Sponsor Side)

## 2. Failure modes the skill is correcting

- Missing structural gaps that shift risk to the borrower or sponsor, especially where the term sheet leaves room for later tightening in the credit documents
- Treating headline economics as the whole deal and overlooking collateral, control, covenant, conditionality, and indemnity points that drive execution risk
- Accepting ambiguous defined terms, cross-document inconsistencies, or mismatched assumptions between the term sheet, engagement letter, borrower memo, and financial summary
- Failing to connect issue severity to closing risk, collateral impact, or economic downside
- Ignoring whether a term is actually market-standard for borrower-side leverage finance, or whether it creates hidden flexibility for the lender group
- Repeating isolated observations without tying each one back to the relevant source document, related provision, and practical consequence
- Producing recommendations that describe concerns but do not give a concrete negotiation ask or timing priority

## 3. Legal frameworks / domain conventions that apply

- Borrower-side leveraged acquisition financings are assessed against the combined package of term sheet economics, credit support, collateral coverage, covenant mechanics, and engagement-letter allocation of expense and indemnity risk
- In an acquisition financing, the sources-and-uses presentation must reconcile to the financing structure and acquisition price logic; inconsistent treatment of assumed liabilities, fees, or rollover amounts signals a documentation or modeling error
- Pro forma EBITDA definitions should align with the intended covenant framework and closing-day leverage picture; vague or competing definitions create dispute risk across leverage tests and pricing grids
- Guarantor and collateral coverage terms should be checked against the acquisition structure and entity chain; missing credit support may materially weaken lender protections and can alter closing leverage assumptions
- Synergy and other addbacks should be tested for definitional support, reasonableness qualifiers, and any aggregate cap on adjustments; open-ended addbacks can overstate capacity and distort covenant headroom
- Limited conditionality is a core borrower-side protection in acquisition financing; if absent or under-specified, the lender may introduce additional funding conditions in the definitive documentation
- Springing maintenance covenant mechanics must be checked for the correct utilization trigger, measurement period, and borrowing definition; ambiguity can shift when the covenant turns on
- Commitment availability should be measured against the expected signing-to-closing path, including diligence, financing approval, syndication, and any required marketing period
- Market flex should be assessed by type and scope; covenant flex is typically more consequential than pricing flex and should be bounded to prevent silent re-trading of the deal
- Engagement-letter indemnities should be reviewed for scope, exclusions, and expense allocation; uncapped or one-sided indemnities are borrower-unfavorable absent customary carve-outs

## 4. Analytical scaffolds

1. Parse the source set by document type and role: identify which terms are in the term sheet, which assumptions are in the borrower memo or financial summary, and which risk allocations sit in the engagement letter
2. Map each issue to the controlling provision and then to the interacting document or clause that creates the inconsistency or leverage point
3. Test whether the deal economics, collateral package, and covenant mechanics all point to the same closing-day structure
4. For each issue, assess scale using the transaction figures or thresholds stated in the source materials, then state why the discrepancy matters operationally, economically, or transactionally
5. Distinguish between drafting ambiguity, borrower-unfavorable economics, and execution blockers; do not collapse them into a single generic concern
6. Where a term is missing, identify the market convention or fallback position the borrower should request, and frame the ask as a concrete edit or concession
7. When multiple issues are present, rank them by closability, not just by abstract legal significance
8. If the source materials present only one relevant transaction structure, state that expressly; otherwise analyze each distinct structure, party, or funding path separately before comparing them
9. Treat any inconsistency between the memo, summary, and term sheet as a separate issue if it changes leverage, collateral, timing, or fee exposure
10. Use plain, negotiation-ready language that a lending, sponsor, or financing team can act on immediately

## 5. Vertical / structural / temporal relationships (only if applicable)

- Check whether the acquisition vehicle sits above, below, or alongside the operating target in a way that changes guarantor reach, security package, or covenant scope
- Check whether closing conditions are deferred to the definitive credit documents, or instead fixed in the term sheet, because that affects how much risk can be added later
- Check whether the commitment remains live through the expected signing, syndication, diligence, and closing sequence
- Check whether fee, expense, and indemnity obligations arise at signing, launch, closing, or upon termination, and whether those timing points are consistent across documents
- Check whether covenant triggers depend on one borrowing measure while the financial summary uses another, since that can create a false sense of headroom
- Check whether addbacks, assumptions, and fee treatments are being applied on a pre- or post-financing basis, since timing can change the leverage picture
- Check whether any flex rights, amendment rights, or documentation discretion sit with the lender group at a stage where the borrower still needs pricing certainty

## 6. Output structure conventions

- Produce a prioritized issues memo with an explicit ordinal severity scale defined once at the top, such as Critical, High, Medium, and Low
- For each issue, include: the affected provision or document, the specific inconsistency or borrower-side concern, the cross-document hook or related clause, the practical consequence for the client, the severity level, and the recommended negotiation response
- Tie every issue to a concrete source-based scale or threshold when one is available, such as commitment amount, leverage measure, headroom, term length, fee exposure, or closing timetable
- Use issue numbers and keep the discussion concise but complete; each entry should read as a self-contained negotiation point
- End with a short Recommended Actions section that converts the highest-priority issues into imperative next steps, naming the responsible role and the relevant timing milestone
- If the materials appear internally consistent on a point, say so briefly rather than manufacturing an issue; prioritize genuine discrepancies and borrower-unfavorable drafting
- Use conventional memo headings rather than reproducing any source-document checklist or internal rubric language