Scenario 18

---
name: draft-lpa-scenario-18
task_id: funds-asset-management/draft-lpa/scenario-18
description: Draft a successor fund LPA that updates benchmark-rate references to a current alternative reference rate, verifies and corrects any carried-forward waterfall mechanics, and incorporates equalization mechanics for later-closing investors, including checking any supplemental memo that purports to correct the waterfall for a separate error.
activates_for: [planner, solver, checker]
---

# Skill: Draft Successor Fund LPA — Reference Rate Transition, Waterfall Correction, and Equalization

## 1. Subject-matter triage

- Treat the fund precedent as the base instrument and the term sheet, LP counsel memo, waterfall correction memo, market terms report, and equalization emails as amendment drivers, not standalone authorities.
- Draft the LPA first; treat the issues list as a separate secondary deliverable that captures conflicts, open questions, and unresolved elections.
- Identify every provision that changes economics, timing, or allocation mechanics before drafting; do not assume a single rate, waterfall tier, or equalization formula governs all occurrences.
- Where the source set contains multiple closing dates, investor cohorts, or mechanic variants, enumerate them before applying the drafting analysis.

## 2. Failure modes the skill is correcting

- The drafter updates a legacy benchmark reference without updating the associated compounding convention, fallback mechanics, and linked equalization language, leaving an internally inconsistent rate regime.
- The drafter adopts a correction memo as dispositive without independently verifying the waterfall formula and termination condition, thereby carrying forward a second error.
- The drafter compresses equalization mechanics into a generic sentence and omits the calculation basis, payment timing, capital-account treatment, and waterfall interaction.
- The drafter fails to separate source-document conflicts from true drafting decisions, so the issues list mixes unresolved questions with completed edits.
- The draft is produced before the operative LPA exists in full, or the issues list is allowed to substitute for actual drafting.
- The draft states conclusions about market practice or controlling fund-law mechanics without tying them to the governing provision, rule, or standard reflected in the source set or recognized practice authority.

## 3. Legal frameworks / domain conventions that apply

**Reference-rate transition.** When a legacy benchmark is replaced, the draft should use the current market alternative reference rate by full name, include the administrator or publication source if relevant, and specify the calculation convention that applies to the rate. Any fallback must be coherent with the main rate provision and should address temporary unavailability and successor-selection mechanics.

**Compounding and fallback coherence.** A benchmark replacement is not complete if the draft changes the headline rate only. The associated compounding, lookback, observation shift, or business-day convention must track the selected market formulation, and any fallback should fit that same framework.

**Waterfall verification.** Carried-interest mechanics must be read as an integrated allocation scheme. The catch-up percentage, the distribution trigger, and the termination point must be tested against the carry percentage and the surrounding waterfall language before any correction is accepted.

**Correction memo caution.** A memo that purports to correct a prior error can itself introduce a new inconsistency. Treat it as a source of a proposed change, not as controlling text.

**Equalization mechanics.** Later-closing investor equalization should specify how the amount is calculated, when it is funded, how the equalization payment is allocated between investors, how the later investor is deemed into the fund, and how the amount flows through the waterfall and capital accounts.

**Issue-list drafting.** Conflicts, open questions, and source-document mismatches should be separated by topic, with each issue tied to the source material that created it and the drafting choice required to resolve it.

## 4. Analytical scaffolds

**Step 1 — Source mapping.** Map every precedent provision that touches interest-rate references, waterfall tiers, catch-up language, or equalization treatment. Treat the term sheet and memo set as overlay documents that may override the precedent only where they are expressly inconsistent.

**Step 2 — Rate audit.** For each rate-related provision, replace the legacy benchmark with the current alternative reference rate formulation chosen for the fund, and confirm the associated compounding and fallback language are updated together.

**Step 3 — Waterfall audit.** Independently verify the waterfall mechanics from the economic split backward:
- identify the profit split intended for carried interest;
- test the catch-up ratio against that split;
- confirm the condition that ends catch-up;
- compare the corrected language against both the precedent and any proposed correction memo;
- flag any mismatch as a separate drafting issue.

**Step 4 — Equalization drafting.** Draft the equalization clause so it states:
- the amount or formula used to compute the equalization payment;
- the trigger for payment and the time by which it is due;
- the capital-account or deemed-participation treatment for the later-closing investor;
- the distribution treatment for the equalization recipient;
- the interaction with the waterfall and any linked fee or interest-rate provisions.

**Step 5 — Conflict resolution.** For each point of divergence among the source documents, choose one of three outcomes: adopt, qualify, or reserve for counsel/investor approval. Capture the unresolved item in the issues list rather than leaving the draft ambiguous.

**Step 6 — Issues list.** Build the issues list by topic, not by source document. For each item, identify the governing clause, the source conflict, the drafting choice needed, and the residual open question if any.

## 5. Vertical / structural / temporal relationships

- Track changes vertically from precedent to final draft: definitions, economic terms, waterfall mechanics, equalization mechanics, and fallback provisions should remain internally consistent across the document.
- Track relationships horizontally across the source set: if a term sheet point affects a memo point, reconcile them in the draft and note the unresolved tension separately.
- Track relationships temporally across closings: earlier-closing and later-closing investor treatment must be aligned so the equalization mechanic works from first close through final close.
- Do not draft a local fix that breaks a downstream provision; test the ripple effects on defined terms, distribution waterfall, capital accounts, and any linked schedule or annex.

## 6. Output structure conventions

- Produce the LPA as the primary deliverable and ensure it is complete and operative before the issues list is finalized.
- Use conventional contract drafting structure: recitals or background if needed; definitions; fund formation and term; commitments and closings; management and expenses; distributions and waterfall; equalization; transfer and confidentiality; tax and miscellaneous; exhibits or schedules as needed.
- In the draft, state the operative provision, then the defined terms or mechanics it depends on, so the clause can stand on its own.
- In the issues list, use a clear topic label for each conflict or open question, identify the source document(s) involved, and state the proposed resolution path.
- Separate completed drafting choices from unresolved items; do not blend them in the same paragraph.
- If the source set supports only one economically coherent answer, say so in the draft and leave no avoidable ambiguity.
- Ensure the final package contains the operative LPA text and a distinct issues list; do not let the issues list replace missing contract language.