The borrowing base structure is particullarly clever here. The declining multiplier from 1.0 to 0.60 over time creates a natural deleveraging mechanism as Nerdy scales towards profitablity. The extended interest only period gives them flexibilty to invest in growth while the TTM contribution margin covenant aligns lender and borrower incentives nicely.
The stepdown borrowing base structre is pretty clever here. Starting at 1.0x TTM contribution margin and working down to 0.6x by 2028 gives them plenty of breathing room early on while they ramp towards profitabilty. That 7.5% end of term charge is steep though. The delayed draw feature on the extra $20mm makes a lot of sense to minimze interest carrying costs until they really need it.
Definitely a unique structure for a term loan but given financial performance/ issues discussed on Q3 earnings, I think it is prudent to layer in a deleveraging mechanism here. Also worth noting that the additional $20m is contingent on lender’s approval so co. will need to perform to get access to that 2nd tranche. Agreed 7.5% final payment is 200 - 300 bps higher than what I typically see but suspect Hercules had some pricing power here given the profile. Will be a deal to watch in the coming quarters..
Yea - I thought is was pretty interesting deal - term loan with TTM contribution margin borrowing base / deleveraging mechanism. I plan to provide a few more comments when I post on LI later this week.
The borrowing base structure is particullarly clever here. The declining multiplier from 1.0 to 0.60 over time creates a natural deleveraging mechanism as Nerdy scales towards profitablity. The extended interest only period gives them flexibilty to invest in growth while the TTM contribution margin covenant aligns lender and borrower incentives nicely.
The stepdown borrowing base structre is pretty clever here. Starting at 1.0x TTM contribution margin and working down to 0.6x by 2028 gives them plenty of breathing room early on while they ramp towards profitabilty. That 7.5% end of term charge is steep though. The delayed draw feature on the extra $20mm makes a lot of sense to minimze interest carrying costs until they really need it.
Definitely a unique structure for a term loan but given financial performance/ issues discussed on Q3 earnings, I think it is prudent to layer in a deleveraging mechanism here. Also worth noting that the additional $20m is contingent on lender’s approval so co. will need to perform to get access to that 2nd tranche. Agreed 7.5% final payment is 200 - 300 bps higher than what I typically see but suspect Hercules had some pricing power here given the profile. Will be a deal to watch in the coming quarters..
Great find! I didn’t even see this one!
Yea - I thought is was pretty interesting deal - term loan with TTM contribution margin borrowing base / deleveraging mechanism. I plan to provide a few more comments when I post on LI later this week.