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Credit Memo Template (Lender Credit Application, DSCR, RAROC)

Lender credit application: borrower, structure, financials, downside cases, DSCR, leverage, guarantees, covenants, rating, EL, RAROC, ESG, approval

財務・投資・会計フルEBA/GL/2020/06 loan origination; CRR3 IRB floorscreditmemomath

使い方: Use it when a bank or private lender must approve a new corporate facility, increase or material amendment. Fill the facility terms, the historical financials and a bank base case and severe case first, then the rating, expected loss and RAROC. The main pitfall is relying on the borrower's plan or on collateral instead of testing repayment capacity under a real downside.

プレビュー

Credit Memo: [Borrower name], [Facility type and amount]

Credit application and approval memorandum that a lender's relationship manager and credit analyst prepare for a corporate or mid-market facility: request and recommendation, borrower and group profile, purpose and structure, industry and business risk, financial analysis, projections and downside cases, repayment capacity (DSCR, leverage and interest cover), guarantees and recovery, covenants and conditions precedent, internal rating and expected loss, pricing and RAROC, ESG risk, policy exceptions and the approval record. Based on the EBA Guidelines on loan origination and monitoring (EBA/GL/2020/06, applying from 2021-06-30), the internal ratings-based provisions of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2024/1623 (CRR3), and US interagency safety and soundness guidance. Replace every [bracketed] value and every row marked Example. This is a document format, not financial, credit, legal, regulatory or accounting advice; obtain the guidelines and the law for the normative text.

Document control

FieldValue
Document ID[CRM-YYYY-NNN] Example: CRM-2025-041
Version[1.0]
Status[Draft / Submitted / Approved / Approved with conditions / Declined / Withdrawn]
Owner[@relationship-manager]
Credit analyst[@credit-analyst]
Approvers/reviewers[@credit-officer], [@head-of-corporate-credit], [Credit committee]
Last updatedYYYY-MM-DD Example: 2025-06-10
Classification[Confidential: contains customer and bank-internal risk information]
Borrower and group[Legal name, registration number, group] Example: Corvid Commerce Group plc and its subsidiaries
Customer ID / group ID[CIF-NNNN] / [GRP-NNNN] Example: CIF-88412 / GRP-2207
Request type[New / Increase / Renewal / Amendment / Extension] Example: New money and refinancing
Total group limit requested[Amount] Example: EUR 30,000k (Fernhollow share of EUR 50,000k club)
Decision authority[Authority level per delegation] Example: Credit committee (level C2: group limit EUR 25,000k to 50,000k)
Internal rating at decision[Grade, PD] Example: FH-6, PD 0.85%
Next review dateYYYY-MM-DD Example: 2026-05-31

Approvals

RoleNameDecisionDate
Relationship manager (proposer)[@name][Proposed]YYYY-MM-DD
Credit analyst[@name][Analysis complete]YYYY-MM-DD
Independent credit officer (second line)[@name][Supported / Supported with conditions / Not supported]YYYY-MM-DD
Credit committee chair[@name][Approved / Declined]YYYY-MM-DD
Dissenting view, if any[@name][Summary of dissent]YYYY-MM-DD

Revision history

VersionDateAuthorChange
0.1YYYY-MM-DD[@credit-analyst]First draft from borrower information pack
0.2YYYY-MM-DD[@credit-officer]Second-line challenge, downside case added
1.0YYYY-MM-DD[@credit-committee-secretary]Version submitted to and approved by the committee

Contents

1. Request summary and recommendation

[Two to four paragraphs: the request, the borrower in one sentence, the primary and secondary sources of repayment, the key strengths and risks, the rating and the recommendation.]

Example: Corvid Commerce Group (Corvid) asks Fernhollow Bank to arrange and act as agent for EUR 50,000k of three-year senior unsecured facilities, originated 2025-06-30: a EUR 30,000k bullet Term Facility and a EUR 20,000k Revolving Facility, both maturing 2028-06-30. The Term Facility refinances EUR 22,000k of amortising bilateral loans; the balance and the revolving facility fund growth in the US and UK and general corporate purposes. Fernhollow will hold 60% (Term EUR 18,000k, Revolving EUR 12,000k); a second club lender takes 40%.

Corvid is a profitable, growing group: FY2024 revenue EUR 110,000k (+14.6%) and EBITDA EUR 12,100k (11.0% margin). Pro forma net debt including leases is EUR 10,500k, or 0.87x EBITDA. Repayment of the Term Facility at maturity relies on refinancing, which the borrower will need to sign about a year before maturity (by mid-2027), supported by base-case EBITDA of EUR 16,200k in FY2026 and EUR 18,600k in FY2027; operating cash flow covers interest and lease service with a pro forma DSCR of 1.49x on FY2024 figures. The binding covenant is debt service cover, because capital expenditure is high; in our severe case it falls to 1.06x unless capex is cut, which management has shown it can do. The recommendation is to approve at internal grade FH-6 (PD 0.85%), facility LGD 32% and a first-year RAROC of 13.2% against an 11.0% hurdle, subject to the conditions in section 15, including the cash management mandate on which the return depends, and with one policy exception (DSCR headroom, EXC-001).

ItemProposal
Recommendation[Approve / Approve with conditions / Decline] Example: Approve with conditions CON-001 to CON-005
Fernhollow limitExample: EUR 30,000k (Term EUR 18,000k, Revolving EUR 12,000k) plus ancillary limits in section 3
Obligor grade, PDExample: FH-6, 0.85%
Facility LGD, EADExample: 32%, EUR 24,000k
Expected loss (one year)Example: EUR 65k
Pro forma leverage / DSCR / interest coverExample: 0.87x / 1.49x / 7.66x (FY2024)
RAROC year 1 / hurdleExample: 13.2% / 11.0%
Policy exceptionsExample: EXC-001, DSCR headroom below the policy minimum (section 13)

2. Borrower and group profile

Describe the legal and economic group, the shareholders and ultimate beneficial owners, the management team and its track record, and the history of the relationship with the bank. Link the KYC file rather than repeating it (section 13). State the group of connected clients used for large exposure and concentration limits, and whether any member already borrows from the bank.

ItemDetail
Legal name and form[Name, legal form, registration] Example: Corvid Commerce Group plc, public limited company, listed in London with American Depositary Shares in New York (SEC foreign private issuer, Form 20-F)
Incorporated / headquartersExample: England and Wales / London and Leipzig
ActivitiesExample: Subscription commerce platform for small retailers (software plus fulfilment) and own-brand consumables
OwnershipExample: Free float 62%, two founders 31% (15.5% each), management and employees 7%
Ultimate beneficial owners above thresholdExample: None above 25%; listed company subject to disclosure requirements; founders and senior managing officials recorded in KYC file KYC-88412
EmployeesExample: 590 FTE at 2024-12-31
Auditor and opinionExample: Ashgrove & Partners LLP (fictional), unmodified opinion on FY2024 consolidated accounts
Relationship sinceExample: 2021 (cash management and FX); no existing credit exposure
Group of connected clientsExample: GRP-2207: parent and four subsidiaries; no shareholder-related exposures

Example: The parent borrows and on-lends to subsidiaries. Germany carries most of the fulfilment operation and the largest share of EBITDA; Vietnam houses software development and a regional warehouse and, at 4.1% of EBITDA, is below the material subsidiary threshold, so it does not accede as guarantor at signing. Management has led the business since 2016; the CFO joined in 2022 from a listed retailer.

3. Purpose, structure and terms

3.1 Sources and uses at closing

Sources (EUR thousand)AmountUsesAmount
Term Facility drawn (Example)30,000Repay existing bilateral loans22,000
Revolving Facility drawn0Transaction fees and costs900
Cash to balance sheet (growth, general purposes)7,100
Total30,000Total30,000

3.2 Facilities and terms

IDFacilityClub amountFernhollow shareTenor and repaymentMargin and fees
FAC-001 (Example)Term Facility30,00018,0003 years, bullet 2028-06-30EURIBOR + margin per ratchet (1.60% at signing); arrangement fee 1.00% of total commitments
FAC-002 (Example)Revolving Facility20,00012,0003 years, final maturity 2028-06-30EURIBOR + margin per ratchet (1.35% at signing); commitment fee 0.35% on undrawn
FAC-003 (Example)Interest rate swap linen/aNotional up to 12,600 (Fernhollow's 60% of the EUR 21,000k hedge)To 2028-06-30Counterparty limit; hedging of 70% of Term Facility interest
FAC-004 (Example)FX forward linen/aSettlement limit 2,00012 months rollingDaily settlement limit
FAC-005 (Example)Agency rolen/an/aLife of facilitiesAgency fee EUR 40k a year

Margin ratchet (both facilities, tested on each compliance certificate):

LeverageTerm marginRevolving margin
2.50x or more (Example)2.75%2.50%
1.50x to below 2.50x2.25%2.00%
1.00x to below 1.50x1.90%1.65%
Below 1.00x1.60%1.35%

Explain why the structure fits the purpose. A bullet term loan suits a growing borrower whose free cash flow is reinvested, but it moves repayment risk to refinancing at maturity; section 7 must then show why refinancing is likely. A committed revolving facility gives the borrower liquidity, so assess the drawn amount the bank should expect in stress (the EAD in section 10), not only today's nil utilisation.

Example: All facilities sit at the parent, which owns the operating subsidiaries. Structural subordination of lenders to subsidiary creditors is mitigated by upstream guarantees from every material subsidiary (section 8) and a guarantor coverage test of 80% of EBITDA and gross assets.

4. Industry and business risk

Cover market size and growth, cyclicality, competitive intensity, barriers to entry, supplier and customer concentration, technology and regulatory change, and the borrower's position: scale, diversification, pricing power and cost flexibility. Use original analysis; cite market data by source and date.

FactorAssessmentScore (1 strong to 5 weak)Evidence
Market growth (Example)Online tools for small retailers growing faster than retail overall2Industry reports, management plan
CyclicalitySubscription revenue resilient; commerce volumes follow consumer spending3FY2020 to FY2024 segment history
CompetitionSeveral larger platforms; Corvid competes on bundled fulfilment4Peer review, win and loss data
Customer concentrationLargest customer 2.1% of revenue; top 20 below 15%1Customer ledger
Supplier dependenceOne cloud hosting provider; two logistics carriers per country3Contracts reviewed
RegulationConsumer protection, data protection, product safety3Legal due diligence summary
Management and governanceExperienced founders, independent chair, audit committee2Board minutes, interviews

Example: Corvid's revenue mix in FY2024 was about 55% subscription, 37% commerce and 8% services. The subscription base gives visibility: gross revenue retention was 92% in FY2024. The commerce segment is the main business risk, with thin margins and exposure to consumer demand and carrier costs. The plan to grow in the US raises execution risk; the bank's base case assumes US revenue grows at half the rate in management's plan.

5. Financial analysis

5.1 Income statement and cash flow summary

EUR thousandFY2022FY2023FY2024
Revenue (Example)84,00096,000110,000
Growthn/a14.3%14.6%
EBITDA8,40010,10012,100
EBITDA margin10.0%10.5%11.0%
Depreciation and amortisation(3,600)(4,100)(4,700)
Operating profit (EBIT)4,8006,0007,400
Net finance cost(1,100)(1,200)(1,400)
Profit before tax3,7004,8006,000
Income tax (25%)(925)(1,200)(1,500)
Profit for the year2,7753,6004,500
Increase in working capital(700)(800)(900)
Tax paid(800)(1,100)(1,300)
Capital expenditure(4,200)(4,900)(5,600)
Cashflow available for debt service2,7003,3004,300

Check (FY2024): 12,100 - 4,700 = 7,400; 7,400 - 1,400 = 6,000; 6,000 x 25% = 1,500; 12,100 - 900 - 1,300 - 5,600 = 4,300.

5.2 Balance sheet and debt at 2024-12-31

EUR thousandActual 2024-12-31Closing adjustmentsPro forma
Existing bilateral loans (Example)22,000(22,000)0
Term Facility030,00030,000
Lease liabilities5,60005,600
Gross debt27,6008,00035,600
Cash and equivalents(18,000)(7,100)(25,100)
Net debt9,60090010,500
Total equity46,000(900)45,100

Check: 22,000 + 5,600 = 27,600; 27,600 - 18,000 = 9,600; cash 18,000 + 30,000 - 22,000 - 900 = 25,100; 35,600 - 25,100 = 10,500. Fees are shown as a reduction of equity for simplicity; under IFRS they are deducted from the carrying amount of the loan and amortised, which does not change covenant net debt if the agreement uses nominal amounts.

5.3 Key ratios

Leverage=Net debtEBITDA=10,50012,100=0.87xInterest cover=EBITDAFinance charges=12,1001,580=7.66x\text{Leverage} = \frac{\text{Net debt}}{\text{EBITDA}} = \frac{10{,}500}{12{,}100} = 0.87\text{x} \qquad \text{Interest cover} = \frac{\text{EBITDA}}{\text{Finance charges}} = \frac{12{,}100}{1{,}580} = 7.66\text{x}
DSCR=CashflowFinance charges+Scheduled principal+Lease principal=4,3001,580+0+1,300=4,3002,880=1.49x\text{DSCR} = \frac{\text{Cashflow}}{\text{Finance charges} + \text{Scheduled principal} + \text{Lease principal}} = \frac{4{,}300}{1{,}580 + 0 + 1{,}300} = \frac{4{,}300}{2{,}880} = 1.49\text{x}

Example: Pro forma finance charges of EUR 1,580k are Term Facility interest at an assumed all-in 4.40% (EUR 1,320k), the commitment fee on the undrawn revolving facility (EUR 70k) and lease interest (EUR 290k), less interest received (EUR 100k). Working capital is negative for the subscription business (customers pay annually in advance) and positive for commerce inventory; the cash conversion cycle was 18 days in FY2024, up from 15 days, because of inventory build for the US launch.

Comment on quality of earnings: development cost (Example: expensed in full in FY2024, so EBITDA is stated after all development spend and capex contains none; the group capitalises development only from FY2026 onwards, so adjust trend comparisons once it does), one-off items, revenue recognition for annual subscriptions, related-party transactions and any auditor emphasis of matter. Where figures are management accounts, say so and state the reliance placed on them.

6. Projections and sensitivity

6.1 Bank base case

EUR thousandFY2025FY2026FY2027
Revenue (Example)123,000138,000152,000
EBITDA13,90016,20018,600
EBITDA margin11.3%11.7%12.2%
Increase in working capital(1,100)(1,300)(1,400)
Tax paid(1,700)(2,300)(2,800)
Capital expenditure(7,000)(8,300)(9,000)
Cashflow4,1004,3005,400
Finance charges1,5501,4501,400
Lease principal1,4001,4501,500
Debt service2,9502,9002,900
Dividends2,0002,4002,800
New leases and fees added to net debt2,1001,2001,200
Net debt at year end11,15011,90011,900
Leverage0.80x0.73x0.64x
Interest cover8.97x11.17x13.29x
DSCR1.39x1.48x1.86x

Net debt rolls forward as opening net debt minus (Cashflow minus finance charges minus dividends) plus new leases and fees. Check FY2025: 9,600 - (4,100 - 1,550 - 2,000) + 2,100 = 11,150, where 2,100 is new leases of 1,200 plus closing fees of 900. Lease principal is excluded from the roll because it reduces cash and lease liabilities equally.

6.2 Downside and severe cases (FY2026)

EUR thousandBaseDownsideSevereSevere with capex cut
Assumption (Example)Bank baseRevenue -10%, EBITDA -25%Revenue -10%, EBITDA -40%Severe, capex cut to maintenance
EBITDA16,20012,1509,7209,720
Increase in working capital(1,300)(600)(300)(300)
Tax paid(2,300)(1,300)(800)(800)
Capital expenditure(8,300)(6,500)(5,500)(4,500)
Cashflow4,3003,7503,1204,120
Debt service (finance charges + lease principal)2,9002,9502,9502,950
Dividends2,4001,00000
Net debt at year end11,90011,10010,7309,730
Leverage (max 3.00x)0.73x0.91x1.10x1.00x
Interest cover (min 4.00x)11.17x8.10x6.48x6.48x
DSCR (min 1.20x)1.48x1.27x1.06x (breach)1.40x

Stressed cases start from the FY2025 base net debt of EUR 11,150k and assume finance charges of EUR 1,500k and new leases of EUR 1,200k. Check (severe): 9,720 - 300 - 800 - 5,500 = 3,120; 3,120 / 2,950 = 1.06x; 11,150 - (3,120 - 1,500 - 0) + 1,200 = 10,730.

Example: Leverage and interest cover stay well inside their limits in every case. DSCR is the binding covenant because Corvid spends heavily on capex. In the severe case it breaches unless management cuts capex to the maintenance level of about EUR 4,500k, which it did in FY2020. The bank therefore asks for quarterly capex reporting (CON-004) and treats DSCR headroom below 15% as an early warning indicator.

6.3 Covenant headroom at signing

EBITDA headroom (leverage)=1−Net debt/3.00EBITDA=1−10,500/3.0012,100=1−3,50012,100=71.1%\text{EBITDA headroom (leverage)} = 1 - \frac{\text{Net debt} / 3.00}{\text{EBITDA}} = 1 - \frac{10{,}500 / 3.00}{12{,}100} = 1 - \frac{3{,}500}{12{,}100} = 71.1\%
Cashflow headroom (DSCR, FY2026 base)=1−1.20×2,9004,300=1−3,4804,300=19.1%\text{Cashflow headroom (DSCR, FY2026 base)} = 1 - \frac{1.20 \times 2{,}900}{4{,}300} = 1 - \frac{3{,}480}{4{,}300} = 19.1\%

State the headroom the credit policy expects at signing (commonly 20% to 30% on each covenant, as the bank's own policy sets) and explain any covenant set tighter or looser than that. Here the leverage covenant is loose by design because it serves as a margin ratchet trigger and dividend lock, while the DSCR covenant does the protective work. Example: Fernhollow's policy minimum is 20% on every financial covenant; the DSCR headroom of 19.1% falls just below it and is recorded as policy exception EXC-001 in section 13.

7. Repayment sources and refinancing risk

SourceTypeAmount or capacityReliability
Operating cash flow after capex and tax (Example)Primary (interest, leases)EUR 4,100k to 5,400k a year in base caseHigh in base, moderate in severe
Refinancing of the bullet in 2028Primary (principal)Base case FY2027 EBITDA 18,600; Term Facility 1.6x (30,000 / 18,600); refinancing targeted for signature by 2027-06-30Moderate: depends on market access
Sale of a business lineSecondaryCommerce segment saleable at a lower multiple than subscriptionLow in stress
Upstream guaranteesSecondaryCovers 95.9% of FY2024 EBITDAEffective only with group value
Equity market access as a listed companyTertiaryPossible equity issue; no shareholder commitmentNot relied on

For a bullet facility, show the debt capacity at maturity: the multiple of projected EBITDA that the outstanding principal represents, the market conditions assumed and the borrower's other maturities. EBA/GL/2020/06 paragraph 262 expects lenders to monitor bullet and balloon loans separately and to assess refinancing risk throughout the life of the loan, so carry this analysis into each Annual Credit Review (finance/annual-credit-review).

Example: With a three-year tenor the refinancing falls inside the bank's projection period. At 2027-12-31 both facilities will have less than 12 months to run: the Term Facility becomes a current liability in Corvid's accounts and the undrawn revolving facility stops counting as committed headroom under its treasury policy. The borrower therefore has to refinance about a year before maturity, on FY2026 results and the FY2027 budget. The bank's base case gives Term Facility debt of 1.9x FY2026 EBITDA (30,000 / 16,200) and 1.6x FY2027 EBITDA, which is comfortably refinanceable in normal markets; the risk is a closed market in 2027, which the first annual review must test.

8. Guarantees, collateral and recovery

SupportProviderCoverageEnforceability notes
Upstream guarantee (Example)Corvid Commerce GmbHFull facilities, subject to German capital maintenance limitationLimitation language reviewed by counsel
Upstream guaranteeCorvid Commerce LtdFull facilitiesNo material limitation
Upstream guaranteeCorvid Commerce IncFull facilitiesFraudulent conveyance savings clause
Negative pledgeAll obligorsRestricts security for other creditorsBaskets per agreement
Guarantor coverage testGroupAt least 80% of EBITDA and gross assetsTested annually

Guarantor contribution at signing (FY2024, EUR thousand):

EntityGuarantorEBITDAShare
Corvid Commerce Group plc (holding costs) (Example)Borrower(600)-5.0%
Corvid Commerce GmbHYes7,30060.3%
Corvid Commerce LtdYes2,90024.0%
Corvid Commerce IncYes2,00016.5%
Corvid Commerce Vietnam LLCNo5004.1%
Group12,100100.0%

Obligors (borrower plus guarantors) contribute 11,600 of 12,100, or 95.9%.

8.1 Recovery analysis

The facilities are unsecured, so recovery depends on the value of the group as a going concern in a default scenario:

Step (EUR thousand)Amount
Distressed EBITDA (severe case) (Example)9,720
Distressed multiple (assumption)5.0x
Distressed enterprise value48,600
Less enforcement and administration costs (5%)(2,430)
Value available to creditors46,170
Claims: facilities fully drawn plus lease liabilities (5,600, held at the signing level)55,600
Recovery rate83.0%

Check: 9,720 x 5.0 = 48,600; 48,600 x 0.95 = 46,170; 50,000 + 5,600 = 55,600; 46,170 / 55,600 = 83.0%. Lease liabilities are held at the signing level on the assumption that new leases broadly replace repayments; if leases grow, recovery falls (with 8,000 of leases it would be 46,170 / 58,000 = 79.6%). The recovery estimate supports, but does not replace, the modelled LGD in section 10, which also reflects downturn conditions, discounting and the bank's historical workout data.

9. Covenants, undertakings and conditions precedent

IDCovenantLevelTestHeadroom at signing
COV-001 (Example)Leverage (Total Net Debt / Covenant EBITDA)Not more than 3.00xQuarterly, rolling 12 months71.1% EBITDA
COV-002 (Example)Interest cover (Covenant EBITDA / Finance Charges)Not less than 4.00xQuarterly47.8% EBITDA (FY2024 pro forma)
COV-003 (Example)Debt service coverNot less than 1.20xQuarterly19.1% cashflow (FY2026 base)
COV-004 (Example)Minimum liquidity (cash plus undrawn revolving)At least EUR 15,000kQuarterlyEUR 30,100k at closing
COV-005 (Example)Capital expenditureNot more than EUR 14,000k a year, 50% carry-forwardAnnualEUR 7,000k (FY2025 base)
COV-006 (Example)Guarantor coverageAt least 80% of EBITDA and gross assetsAnnual15.9 points EBITDA

Check: interest cover headroom 1 - (4.00 x 1,580) / 12,100 = 1 - 6,320 / 12,100 = 47.8%; liquidity at closing 25,100 + 20,000 = 45,100, headroom 45,100 - 15,000 = 30,100.

Information and other undertakings: annual audited accounts within 120 days, quarterly accounts and compliance certificate within 60 days, annual budget before the start of the year, dividends permitted only while leverage is below 2.00x, hedging of at least 70% of Term Facility interest to maturity, and material subsidiaries (5% of EBITDA or gross assets) to accede as guarantors.

IDCondition precedentResponsibleStatus
CP-001 (Example)Signed facility agreement and guaranteesLegalOpen
CP-002Legal opinions on capacity and enforceability (England, Germany, US)Borrower counsel, bank counselOpen
CP-003Board resolutions and specimen signatures of each obligorBorrowerOpen
CP-004Evidence of repayment and release of existing bilateral loansBorrower, existing lendersOpen
CP-005KYC complete for every obligor and UBOKYC teamComplete
CP-006Base case model and FY2024 audited accountsBorrowerComplete
CP-007Fees paidBorrowerOpen

Compare the proposed set with the bank's covenant standards for the segment. Explain any covenant the borrower negotiated away and what replaces its protective function. Name the agent's and the bank's responsibilities for monitoring, and confirm that the definitions in the final agreement match those used in sections 5 and 6 before first drawdown.

10. Risk rating and expected loss

ItemValueBasis
Rating model (Example)Corporate scorecard CORP-MID v4Approved IRB model for corporates below EUR 500m sales
Model outputFH-6Weighted score 5.30
OverridesNonen/a
Final obligor grade, PDFH-6, 0.85%Above the 0.05% PD input floor (CRR Art. 160(1))
Facility LGD (own estimate)32%Senior unsecured with guarantees; above the 25% input floor for unsecured corporate exposures (CRR Art. 161(4))
CCF on undrawn revolving50%Bank CCF model; regulatory CCF per approach used
EAD (Fernhollow share)24,00018,000 + 50% x 12,000
Expected loss (one year)65PD x LGD x EAD
EL=PD×LGD×EAD=0.0085×0.32×24,000=65.3\text{EL} = \text{PD} \times \text{LGD} \times \text{EAD} = 0.0085 \times 0.32 \times 24{,}000 = 65.3

Corvid's consolidated sales are below EUR 500 million, so it is not a "large corporate" under CRR Article 142(1)(5a) as inserted by CRR3, and the bank may use own LGD and CCF estimates if it holds the permission. For a large corporate the bank would apply the foundation LGD of 40% for senior unsecured exposures to non-financial corporates (CRR Art. 161(1)(aa)) and the standardised conversion factors. Under IFRS 9 the exposure is Stage 1 at origination, and the origination PD recorded here becomes the reference point for later significant-increase-in-credit-risk tests (see ECL Methodology, finance/ecl-methodology).

11. Pricing and RAROC

RAROC=(Revenue−Funding cost−Operating cost−EL)×(1−t)Allocated capital\text{RAROC} = \frac{(\text{Revenue} - \text{Funding cost} - \text{Operating cost} - \text{EL}) \times (1 - t)}{\text{Allocated capital}}
Year 1, Fernhollow share (EUR thousand)AmountBasis
Term margin (Example)28818,000 x 1.60%
Commitment fee4212,000 x 0.35%
Arrangement fee (Fernhollow share 300, amortised over 3 years)1001.00% x 50,000 x 60% = 300; 300 / 3
Agency fee40Fee letter
Ancillary income (cash management, FX, swap)150Mandate required (CON-002)
Revenue620
Funding and liquidity cost (FTP)(75)18,000 x 0.35% + 12,000 x 0.10%
Operating cost(130)Cost allocation model
Expected loss(65)Section 10
Risk-adjusted profit before tax350
Tax at 25%(87.5)
Risk-adjusted profit after tax262.5
Allocated capital1,989RWA 15,912 (66.3% of EAD; IRB formula, PD 0.85%, LGD 32%, effective maturity M = 3.0 years per CRR Art. 162(2)) x 12.5% capital ratio
RAROC13.2%Hurdle 11.0%

Check: 288 + 42 + 100 + 40 + 150 = 620; 620 - 75 - 130 - 65 = 350; 350 x 0.75 = 262.5; 24,000 x 0.663 = 15,912; 15,912 x 0.125 = 1,989; 262.5 / 1,989 = 13.2%. Without ancillary income, profit after tax is (470 - 75 - 130 - 65) x 0.75 = 150 and RAROC falls to 7.5%, below the hurdle. The return therefore depends on winning the cash management mandate, which is a condition (CON-002).

The risk weight comes from the corporate IRB formula in CRR Article 153(1) as amended by CRR3 (which removed the former 1.06 scaling factor). Because the bank uses own LGD estimates, CRR Article 162(2) requires a calculated effective maturity, floored at one year and capped at five; for bullet facilities with three years to run, M = 3.0. Do not keep the 2.5-year default of Article 162(1), which applies only without own-LGD permission: for a longer tenor the difference is large (a five-year bullet at the same PD and LGD would carry a risk weight of about 84%). The arrangement fee is spread over the tenor, so RAROC in later years is lower unless ancillary income grows.

Explain how the price compares with the bank's pricing grid for the grade and tenor, with recent comparable transactions and with the club lender's terms. If the price is below the model price, record the pricing exception and who approved it (section 13).

12. ESG and climate risk

FactorExposureAssessmentEffect on credit view
Transition risk (Example)Last-mile delivery emissions, packagingMedium: carrier contracts include electric vehicle targetsNone at present; monitor carrier cost pass-through
Physical riskLeipzig and Ho Chi Minh City warehousesMedium: flood exposure at Vietnam siteInsurance confirmed; Vietnam site small
SocialWarehouse labour practices, data protectionLow to mediumPolicies in place; no material incidents
GovernanceFounders hold 31%; independent chair; UK Corporate Governance Code applies as a listed companyLowSupports rating
ESG data qualityScope 1 and 2 reported, scope 3 estimatedMediumRequest emissions data annually (CON-005)

Explain whether the facility qualifies under the bank's sustainable lending framework, whether any sustainability-linked margin is offered and how its key performance indicators would be verified. The EBA Guidelines on the management of ESG risks (EBA/GL/2025/01) set further expectations for banks' ESG risk management; they apply from 2026-01-11, and from 2027-01-11 at the latest for small and non-complex institutions.

13. Compliance, KYC and policy exceptions

CheckResultReference
Customer due diligence for every obligor and UBO (Example)Complete, standard riskKYC-88412; KYC/CDD Customer Profile (compliance/kyc-cdd-profile)
Sanctions and adverse media screeningNo matchesScreening log 2025-06-05
Enhanced due diligence required?No (no PEP, no high-risk country)EDD Memo (compliance/edd-memo) not required
Large exposure and concentration limitsWithin limits: group exposure 6% of the sector limitLimit system
Related party or insider lendingNoneConflicts declaration
Leveraged transaction under internal definitionNo: total debt to EBITDA below threshold, not sponsor-ownedCredit policy
IDPolicy exceptionRationaleApprover
EXC-001 (Example)DSCR covenant headroom 19.1% (FY2026 base) below the 20% policy minimumCovenant set tight on purpose to catch capex overruns early; leverage and interest cover headroom far above policy; mitigated by quarterly capex reporting (CON-004) and an early warning trigger at 15% headroomCredit committee C2
EXC-002[Exception, e.g. tenor above segment maximum][Why acceptable and how mitigated][Authority level]

14. Key risks and mitigants

IDRiskMitigantResidual
RSK-001 (Example)Commerce volumes fall in a consumer downturnSubscription base 55% of revenue; variable fulfilment costs; DSCR covenant and capex reportingMedium
RSK-002 (Example)US expansion consumes cash without returnsCapex covenant; base case halves management's US growth; liquidity covenantMedium
RSK-003 (Example)Refinancing of the 2028 bullet, due for signature by 2027-06-30Low leverage, growing EBITDA, listed-company market access; bank monitors refinancing from 2026-12Medium
RSK-004 (Example)Cash trapped in VietnamSmall share of cash; material subsidiary accession clauseLow
RSK-005 (Example)Key-person dependence on foundersSuccession plan reviewed by board; independent chairLow

15. Approval, conditions and sign-off

IDConditionTypeOwnerDue
CON-001 (Example)Final documentation consistent with term sheet; definitions match sections 5 and 6Pre-signing[@credit-documentation]Before signing
CON-002 (Example)Cash management and FX mandate with FernhollowPre-drawdown[@relationship-manager]2025-06-30
CON-003 (Example)Interest rate hedge of at least 70% of Term Facility interest to maturity (2028-06-30)Post-closing[@relationship-manager]Within 90 days
CON-004 (Example)Quarterly capex report with the compliance certificateOngoing[@credit-analyst]Each quarter
CON-005 (Example)Annual emissions and ESG dataOngoing[@relationship-manager]With annual accounts
Decision itemRecord
Decision (Example)Approved with conditions CON-001 to CON-005
AuthorityCredit committee C2, quorum present
Votes and dissentUnanimous; one member asked for the severe case to be repeated at the first annual review
Limits loaded[Date and limit system reference]
First reviewAnnual Credit Review due 2026-05-31

Keep the analyst and the approver independent of the business that benefits from the decision, record every vote and dissent, and file the final memo with the decision. After approval, any change in amount, tenor, pricing, covenants or guarantor package needs a new decision at the right authority level.

16. Glossary and references

16.1 Glossary

TermMeaning
CCFCredit conversion factor: share of an undrawn commitment expected to be drawn by default
DSCRDebt service cover ratio: cash available for debt service divided by interest, fees and scheduled principal
EADExposure at default
ELExpected loss: PD x LGD x EAD
FTPFunds transfer pricing: the internal charge for funding and liquidity
IRBInternal ratings-based approach to credit risk capital
LGDLoss given default, as a share of EAD
PDProbability of default over one year
RAROCRisk-adjusted return on capital
RWARisk-weighted assets
SICRSignificant increase in credit risk (IFRS 9 staging)

16.2 References

ReferenceVersion or date checkedUse
EBA Guidelines on loan origination and monitoring, EBA/GL/2020/06Final report 2020-05-29; applies from 2021-06-30 (checked 2026-10-25)Sections 4.3.1, 4.3.5, 4.4, 5.1, 5.2.6, 5.3, 6, 7, 8 and Annexes 1 to 3
Regulation (EU) No 575/2013 (CRR) as amended by Regulation (EU) 2024/1623 (CRR3)CRR3 OJ 2024-06-19, applying from 2025-01-01; check the consolidated textArts 142(1)(5a), 153(1), 160(1), 161(1)(aa), 161(4), 162(1) and (2), 172(1)
EBA Guidelines on the management of ESG risks, EBA/GL/2025/01Apply from 2026-01-11; for small and non-complex institutions from 2027-01-11 at the latestESG risk management context
Interagency Guidelines Establishing Standards for Safety and Soundness, 12 CFR Part 30, Appendix A (US)Name only, not re-checkedLoan documentation and credit underwriting standards; applies to OCC-supervised institutions and federal branches (equivalent Federal Reserve and FDIC appendices apply to state-licensed branches)
Interagency Guidance on Credit Risk Review Systems (Fed SR 20-13, 2020-05-08)Checked 2026-10-25US expectations for independent credit review
IFRS 9 Financial Instruments, impairment section 5.5 (IFRS Foundation)Name and section number onlyStaging reference
Loan Market Association recommended formsName onlyMarket documentation context

Standard and licence note

Based on the EBA Guidelines on loan origination and monitoring (EBA/GL/2020/06, reproduction authorised with acknowledgement of the EBA as source), Regulation (EU) No 575/2013 as amended by Regulation (EU) 2024/1623, and US federal guidance (12 CFR Part 30 Appendix A and SR 20-13, US government works). Section and article numbers are cited and requirements are described in original wording; no text is reproduced. IFRS 9 and Loan Market Association documents are cited by name and section number only; this template is not affiliated with or endorsed by the EBA, the IFRS Foundation or the LMA. Fernhollow Bank, Corvid Commerce Group and every figure are fictional. Credit policies, rating scales, hurdle rates and covenant levels in the example are illustrations, not regulatory thresholds. This template is original text written for this collection. Check the current official versions of the cited texts before use. Template licence: MIT.

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