# 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.

<!--
Guidance: How to use this template
- One memo per credit decision. Use it for new facilities, increases,
  material amendments and extensions. For the yearly look-back on an
  existing borrower use Annual Credit Review (`finance/annual-credit-review`);
  for the rating file behind the grade use Credit Rating Rationale
  (`finance/credit-rating-rationale`).
- This is the lender's document. An investor's view of a bond issuer
  belongs in Bond Credit Analysis (`finance/bond-credit-analysis`); the
  borrower's own covenant reporting is the Covenant Compliance
  Certificate (`finance/covenant-compliance-certificate`).
- Write section 1 last. It must let a credit committee member decide
  without reading further, and it must agree with every number below.
- Worked example: fictional Fernhollow Bank (mid-sized EU credit
  institution, IRB permission for corporates) arranges EUR 50,000k senior
  facilities for the fictional Corvid Commerce Group (SaaS retailer, IFRS
  reporter, functional currency EUR, calendar financial year, parent plus
  subsidiaries in Germany, the UK, the US and Vietnam). Fernhollow holds
  60%; a second club lender holds 40%. Amounts are EUR thousand unless
  stated. The memo is dated 2025-06-10 and uses FY2024 audited figures.
-->

## Document control

<!-- Guidance: Record who wrote, who reviewed and who decided. EBA/GL/2020/06 section 4.4 expects a documented decision taken within delegated authority; record dissenting views as good practice. Pitfall: approving by email and never filing the final memo version the committee saw. -->

| Field | Value |
|---|---|
| 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 updated | YYYY-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 date | YYYY-MM-DD *Example:* 2026-05-31 |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| 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

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

## Contents

1. [Request summary and recommendation](#1-request-summary-and-recommendation)
2. [Borrower and group profile](#2-borrower-and-group-profile)
3. [Purpose, structure and terms](#3-purpose-structure-and-terms)
4. [Industry and business risk](#4-industry-and-business-risk)
5. [Financial analysis](#5-financial-analysis)
6. [Projections and sensitivity](#6-projections-and-sensitivity)
7. [Repayment sources and refinancing risk](#7-repayment-sources-and-refinancing-risk)
8. [Guarantees, collateral and recovery](#8-guarantees-collateral-and-recovery)
9. [Covenants, undertakings and conditions precedent](#9-covenants-undertakings-and-conditions-precedent)
10. [Risk rating and expected loss](#10-risk-rating-and-expected-loss)
11. [Pricing and RAROC](#11-pricing-and-raroc)
12. [ESG and climate risk](#12-esg-and-climate-risk)
13. [Compliance, KYC and policy exceptions](#13-compliance-kyc-and-policy-exceptions)
14. [Key risks and mitigants](#14-key-risks-and-mitigants)
15. [Approval, conditions and sign-off](#15-approval-conditions-and-sign-off)
16. [Glossary and references](#16-glossary-and-references)

## 1. Request summary and recommendation

<!-- Guidance: One page. State what is requested, why, how it is repaid, the rating, the return and the recommendation with its conditions. Questions to answer: Would the committee approve on this page alone? Is every key ratio here traceable to sections 5 to 11? Pitfall: a summary that sells the deal and hides the downside case. -->

[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).

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

## 2. Borrower and group profile

<!-- Guidance: Describe who the borrower is, who owns and controls it, and which entities sign. EBA/GL/2020/06 paragraph 147 asks for assessment at individual and group level for connected clients. Pitfall: lending to a holding company while the cash flow sits in subsidiaries that give no guarantee. -->

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.

| Item | Detail |
|---|---|
| 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 / headquarters | *Example:* England and Wales / London and Leipzig |
| Activities | *Example:* Subscription commerce platform for small retailers (software plus fulfilment) and own-brand consumables |
| Ownership | *Example:* Free float 62%, two founders 31% (15.5% each), management and employees 7% |
| Ultimate beneficial owners above threshold | *Example:* None above 25%; listed company subject to disclosure requirements; founders and senior managing officials recorded in KYC file KYC-88412 |
| Employees | *Example:* 590 FTE at 2024-12-31 |
| Auditor and opinion | *Example:* Ashgrove & Partners LLP (fictional), unmodified opinion on FY2024 consolidated accounts |
| Relationship since | *Example:* 2021 (cash management and FX); no existing credit exposure |
| Group of connected clients | *Example:* GRP-2207: parent and four subsidiaries; no shareholder-related exposures |

```mermaid
flowchart TD
  P["Corvid Commerce Group plc (UK parent, borrower)"] --> DE["Corvid Commerce GmbH (Germany, guarantor)"]
  P --> UK["Corvid Commerce Ltd (UK, guarantor)"]
  P --> US["Corvid Commerce Inc (US, guarantor)"]
  P --> VN["Corvid Commerce Vietnam LLC (non-guarantor, below 5% threshold)"]
```

*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

<!-- Guidance: Show exactly what the bank is asked to commit to: each facility, amount, tenor, repayment profile, pricing, fees and ancillary lines. EBA/GL/2020/06 paragraph 144(e) asks for an assessment of the transaction structure, including structural subordination. Pitfall: describing the club total and forgetting to show the bank's own share and ancillary exposures. -->

### 3.1 Sources and uses at closing

| Sources (EUR thousand) | Amount | Uses | Amount |
|---|---|---|---|
| Term Facility drawn *(Example)* | 30,000 | Repay existing bilateral loans | 22,000 |
| Revolving Facility drawn | 0 | Transaction fees and costs | 900 |
| | | Cash to balance sheet (growth, general purposes) | 7,100 |
| **Total** | **30,000** | **Total** | **30,000** |

### 3.2 Facilities and terms

| ID | Facility | Club amount | Fernhollow share | Tenor and repayment | Margin and fees |
|---|---|---|---|---|---|
| FAC-001 *(Example)* | Term Facility | 30,000 | 18,000 | 3 years, bullet 2028-06-30 | EURIBOR + margin per ratchet (1.60% at signing); arrangement fee 1.00% of total commitments |
| FAC-002 *(Example)* | Revolving Facility | 20,000 | 12,000 | 3 years, final maturity 2028-06-30 | EURIBOR + margin per ratchet (1.35% at signing); commitment fee 0.35% on undrawn |
| FAC-003 *(Example)* | Interest rate swap line | n/a | Notional up to 12,600 (Fernhollow's 60% of the EUR 21,000k hedge) | To 2028-06-30 | Counterparty limit; hedging of 70% of Term Facility interest |
| FAC-004 *(Example)* | FX forward line | n/a | Settlement limit 2,000 | 12 months rolling | Daily settlement limit |
| FAC-005 *(Example)* | Agency role | n/a | n/a | Life of facilities | Agency fee EUR 40k a year |

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

| Leverage | Term margin | Revolving margin |
|---|---|---|
| 2.50x or more *(Example)* | 2.75% | 2.50% |
| 1.50x to below 2.50x | 2.25% | 2.00% |
| 1.00x to below 1.50x | 1.90% | 1.65% |
| Below 1.00x | 1.60% | 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

<!-- Guidance: Explain how the borrower earns money, what could stop it and how it compares with peers. EBA/GL/2020/06 paragraph 144(b) asks for an analysis of the organisational structure, business model and strategy. Pitfall: describing the industry in general terms without linking it to this borrower's cash flow. -->

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.

| Factor | Assessment | Score (1 strong to 5 weak) | Evidence |
|---|---|---|---|
| Market growth *(Example)* | Online tools for small retailers growing faster than retail overall | 2 | Industry reports, management plan |
| Cyclicality | Subscription revenue resilient; commerce volumes follow consumer spending | 3 | FY2020 to FY2024 segment history |
| Competition | Several larger platforms; Corvid competes on bundled fulfilment | 4 | Peer review, win and loss data |
| Customer concentration | Largest customer 2.1% of revenue; top 20 below 15% | 1 | Customer ledger |
| Supplier dependence | One cloud hosting provider; two logistics carriers per country | 3 | Contracts reviewed |
| Regulation | Consumer protection, data protection, product safety | 3 | Legal due diligence summary |
| Management and governance | Experienced founders, independent chair, audit committee | 2 | Board 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

<!-- Guidance: Analyse at least three years of audited figures plus the latest interim period, on a basis the covenants will use. EBA/GL/2020/06 paragraph 150 lists the areas: financial position and capital structure, working capital, income, cash flow, leverage, dividends, capex and the cash conversion cycle. Pitfall: copying management's EBITDA without reconciling it to the audited operating profit. -->

### 5.1 Income statement and cash flow summary

| EUR thousand | FY2022 | FY2023 | FY2024 |
|---|---|---|---|
| Revenue *(Example)* | 84,000 | 96,000 | 110,000 |
| Growth | n/a | 14.3% | 14.6% |
| EBITDA | 8,400 | 10,100 | 12,100 |
| EBITDA margin | 10.0% | 10.5% | 11.0% |
| Depreciation and amortisation | (3,600) | (4,100) | (4,700) |
| Operating profit (EBIT) | 4,800 | 6,000 | 7,400 |
| Net finance cost | (1,100) | (1,200) | (1,400) |
| Profit before tax | 3,700 | 4,800 | 6,000 |
| Income tax (25%) | (925) | (1,200) | (1,500) |
| Profit for the year | 2,775 | 3,600 | 4,500 |
| 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 service | 2,700 | 3,300 | 4,300 |

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 thousand | Actual 2024-12-31 | Closing adjustments | Pro forma |
|---|---|---|---|
| Existing bilateral loans *(Example)* | 22,000 | (22,000) | 0 |
| Term Facility | 0 | 30,000 | 30,000 |
| Lease liabilities | 5,600 | 0 | 5,600 |
| **Gross debt** | **27,600** | **8,000** | **35,600** |
| Cash and equivalents | (18,000) | (7,100) | (25,100) |
| **Net debt** | **9,600** | **900** | **10,500** |
| Total equity | 46,000 | (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

$$
\text{Leverage} = \frac{\text{Net debt}}{\text{EBITDA}} = \frac{10{,}500}{12{,}100} = 0.87\text{x}
\qquad
\text{Interest cover} = \frac{\text{EBITDA}}{\text{Finance charges}} = \frac{12{,}100}{1{,}580} = 7.66\text{x}
$$

$$
\text{DSCR} = \frac{\text{Cashflow}}{\text{Finance charges} + \text{Scheduled principal} + \text{Lease principal}} = \frac{4{,}300}{1{,}580 + 0 + 1{,}300} = \frac{4{,}300}{2{,}880} = 1.49\text{x}
$$

*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

<!-- Guidance: Use a bank base case, not the borrower's plan, plus at least one downside and one severe case. EBA/GL/2020/06 paragraph 150(a) asks for debt-servicing capacity under possible adverse events. Questions to answer: Which assumption breaks the deal first? What can management do about it? Pitfall: a "downside" case that still grows revenue. -->

### 6.1 Bank base case

| EUR thousand | FY2025 | FY2026 | FY2027 |
|---|---|---|---|
| Revenue *(Example)* | 123,000 | 138,000 | 152,000 |
| EBITDA | 13,900 | 16,200 | 18,600 |
| EBITDA margin | 11.3% | 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) |
| **Cashflow** | **4,100** | **4,300** | **5,400** |
| Finance charges | 1,550 | 1,450 | 1,400 |
| Lease principal | 1,400 | 1,450 | 1,500 |
| **Debt service** | **2,950** | **2,900** | **2,900** |
| Dividends | 2,000 | 2,400 | 2,800 |
| New leases and fees added to net debt | 2,100 | 1,200 | 1,200 |
| **Net debt at year end** | **11,150** | **11,900** | **11,900** |
| Leverage | 0.80x | 0.73x | 0.64x |
| Interest cover | 8.97x | 11.17x | 13.29x |
| DSCR | 1.39x | 1.48x | 1.86x |

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 thousand | Base | Downside | Severe | Severe with capex cut |
|---|---|---|---|---|
| Assumption *(Example)* | Bank base | Revenue -10%, EBITDA -25% | Revenue -10%, EBITDA -40% | Severe, capex cut to maintenance |
| EBITDA | 16,200 | 12,150 | 9,720 | 9,720 |
| 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) |
| Cashflow | 4,300 | 3,750 | 3,120 | 4,120 |
| Debt service (finance charges + lease principal) | 2,900 | 2,950 | 2,950 | 2,950 |
| Dividends | 2,400 | 1,000 | 0 | 0 |
| Net debt at year end | 11,900 | 11,100 | 10,730 | 9,730 |
| Leverage (max 3.00x) | 0.73x | 0.91x | 1.10x | 1.00x |
| Interest cover (min 4.00x) | 11.17x | 8.10x | 6.48x | 6.48x |
| DSCR (min 1.20x) | 1.48x | 1.27x | 1.06x (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

$$
\text{EBITDA headroom (leverage)} = 1 - \frac{\text{Net debt} / 3.00}{\text{EBITDA}} = 1 - \frac{10{,}500 / 3.00}{12{,}100} = 1 - \frac{3{,}500}{12{,}100} = 71.1\%
$$

$$
\text{Cashflow headroom (DSCR, FY2026 base)} = 1 - \frac{1.20 \times 2{,}900}{4{,}300} = 1 - \frac{3{,}480}{4{,}300} = 19.1\%
$$

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

<!-- Guidance: Name the primary source (cash flow from operations, EBA/GL/2020/06 paragraph 142), the secondary source (guarantees, collateral, sale of assets) and, for bullet loans, the refinancing case. Pitfall: treating collateral as the reason to lend; paragraph 143 says collateral alone cannot justify approval. -->

| Source | Type | Amount or capacity | Reliability |
|---|---|---|---|
| Operating cash flow after capex and tax *(Example)* | Primary (interest, leases) | EUR 4,100k to 5,400k a year in base case | High in base, moderate in severe |
| Refinancing of the bullet in 2028 | Primary (principal) | Base case FY2027 EBITDA 18,600; Term Facility 1.6x (30,000 / 18,600); refinancing targeted for signature by 2027-06-30 | Moderate: depends on market access |
| Sale of a business line | Secondary | Commerce segment saleable at a lower multiple than subscription | Low in stress |
| Upstream guarantees | Secondary | Covers 95.9% of FY2024 EBITDA | Effective only with group value |
| Equity market access as a listed company | Tertiary | Possible equity issue; no shareholder commitment | Not 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

<!-- Guidance: Describe every form of credit support and how much it would recover after default. For immovable or movable collateral follow EBA/GL/2020/06 section 7 and use Collateral Valuation Review (`finance/collateral-valuation-review`). Pitfall: assuming a guarantee from a subsidiary is worth its face value when the subsidiary's value falls with the parent's. -->

| Support | Provider | Coverage | Enforceability notes |
|---|---|---|---|
| Upstream guarantee *(Example)* | Corvid Commerce GmbH | Full facilities, subject to German capital maintenance limitation | Limitation language reviewed by counsel |
| Upstream guarantee | Corvid Commerce Ltd | Full facilities | No material limitation |
| Upstream guarantee | Corvid Commerce Inc | Full facilities | Fraudulent conveyance savings clause |
| Negative pledge | All obligors | Restricts security for other creditors | Baskets per agreement |
| Guarantor coverage test | Group | At least 80% of EBITDA and gross assets | Tested annually |

Guarantor contribution at signing (FY2024, EUR thousand):

| Entity | Guarantor | EBITDA | Share |
|---|---|---|---|
| Corvid Commerce Group plc (holding costs) *(Example)* | Borrower | (600) | -5.0% |
| Corvid Commerce GmbH | Yes | 7,300 | 60.3% |
| Corvid Commerce Ltd | Yes | 2,900 | 24.0% |
| Corvid Commerce Inc | Yes | 2,000 | 16.5% |
| Corvid Commerce Vietnam LLC | No | 500 | 4.1% |
| **Group** | | **12,100** | **100.0%** |

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 value | 48,600 |
| Less enforcement and administration costs (5%) | (2,430) |
| Value available to creditors | 46,170 |
| Claims: facilities fully drawn plus lease liabilities (5,600, held at the signing level) | 55,600 |
| **Recovery rate** | **83.0%** |

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

<!-- Guidance: List the covenants the bank needs to detect deterioration early and to protect its position. EBA/GL/2020/06 paragraphs 267 and 268 treat covenant adherence and timely compliance certificates as early warning tools. Pitfall: agreeing definitions in the term sheet that differ from the ones the analysis used. -->

| ID | Covenant | Level | Test | Headroom at signing |
|---|---|---|---|---|
| COV-001 *(Example)* | Leverage (Total Net Debt / Covenant EBITDA) | Not more than 3.00x | Quarterly, rolling 12 months | 71.1% EBITDA |
| COV-002 *(Example)* | Interest cover (Covenant EBITDA / Finance Charges) | Not less than 4.00x | Quarterly | 47.8% EBITDA (FY2024 pro forma) |
| COV-003 *(Example)* | Debt service cover | Not less than 1.20x | Quarterly | 19.1% cashflow (FY2026 base) |
| COV-004 *(Example)* | Minimum liquidity (cash plus undrawn revolving) | At least EUR 15,000k | Quarterly | EUR 30,100k at closing |
| COV-005 *(Example)* | Capital expenditure | Not more than EUR 14,000k a year, 50% carry-forward | Annual | EUR 7,000k (FY2025 base) |
| COV-006 *(Example)* | Guarantor coverage | At least 80% of EBITDA and gross assets | Annual | 15.9 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.

| ID | Condition precedent | Responsible | Status |
|---|---|---|---|
| CP-001 *(Example)* | Signed facility agreement and guarantees | Legal | Open |
| CP-002 | Legal opinions on capacity and enforceability (England, Germany, US) | Borrower counsel, bank counsel | Open |
| CP-003 | Board resolutions and specimen signatures of each obligor | Borrower | Open |
| CP-004 | Evidence of repayment and release of existing bilateral loans | Borrower, existing lenders | Open |
| CP-005 | KYC complete for every obligor and UBO | KYC team | Complete |
| CP-006 | Base case model and FY2024 audited accounts | Borrower | Complete |
| CP-007 | Fees paid | Borrower | Open |

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

<!-- Guidance: Show the obligor grade, the facility LGD and EAD, and the expected loss. CRR Article 172(1) requires an obligor grade (and, with own LGD estimates, a facility grade) as part of the credit approval process. Document the full rationale in Credit Rating Rationale (`finance/credit-rating-rationale`). Pitfall: a rating changed to fit the pricing. -->

| Item | Value | Basis |
|---|---|---|
| Rating model *(Example)* | Corporate scorecard CORP-MID v4 | Approved IRB model for corporates below EUR 500m sales |
| Model output | FH-6 | Weighted score 5.30 |
| Overrides | None | n/a |
| Final obligor grade, PD | FH-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 revolving | 50% | Bank CCF model; regulatory CCF per approach used |
| EAD (Fernhollow share) | 24,000 | 18,000 + 50% x 12,000 |
| Expected loss (one year) | 65 | PD x LGD x EAD |

$$
\text{EL} = \text{PD} \times \text{LGD} \times \text{EAD} = 0.0085 \times 0.32 \times 24{,}000 = 65.3
$$

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

<!-- Guidance: EBA/GL/2020/06 section 6 (paragraph 202) expects pricing to reflect the cost of capital, funding, operations and credit risk, plus competition. Show the calculation and say what the return depends on. Pitfall: counting ancillary income the client has not mandated. -->

$$
\text{RAROC} = \frac{(\text{Revenue} - \text{Funding cost} - \text{Operating cost} - \text{EL}) \times (1 - t)}{\text{Allocated capital}}
$$

| Year 1, Fernhollow share (EUR thousand) | Amount | Basis |
|---|---|---|
| Term margin *(Example)* | 288 | 18,000 x 1.60% |
| Commitment fee | 42 | 12,000 x 0.35% |
| Arrangement fee (Fernhollow share 300, amortised over 3 years) | 100 | 1.00% x 50,000 x 60% = 300; 300 / 3 |
| Agency fee | 40 | Fee letter |
| Ancillary income (cash management, FX, swap) | 150 | Mandate required (CON-002) |
| **Revenue** | **620** | |
| 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 tax** | **350** | |
| Tax at 25% | (87.5) | |
| **Risk-adjusted profit after tax** | **262.5** | |
| Allocated capital | 1,989 | RWA 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 |
| **RAROC** | **13.2%** | 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

<!-- Guidance: EBA/GL/2020/06 paragraph 146 and section 4.3.5 ask lenders to assess the borrower's exposure to ESG factors, especially climate, and its mitigation. Use a sector heat map first, then go deeper for higher-risk borrowers (paragraph 149). Pitfall: a generic paragraph with no link to cash flow or rating. -->

| Factor | Exposure | Assessment | Effect on credit view |
|---|---|---|---|
| Transition risk *(Example)* | Last-mile delivery emissions, packaging | Medium: carrier contracts include electric vehicle targets | None at present; monitor carrier cost pass-through |
| Physical risk | Leipzig and Ho Chi Minh City warehouses | Medium: flood exposure at Vietnam site | Insurance confirmed; Vietnam site small |
| Social | Warehouse labour practices, data protection | Low to medium | Policies in place; no material incidents |
| Governance | Founders hold 31%; independent chair; UK Corporate Governance Code applies as a listed company | Low | Supports rating |
| ESG data quality | Scope 1 and 2 reported, scope 3 estimated | Medium | Request 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

<!-- Guidance: Confirm that the customer due diligence is complete and current, that sanctions screening is clear, and list every exception to credit policy with its approver. EBA/GL/2020/06 section 4.3.1 links AML/CFT checks to credit granting. Pitfall: approving the credit while KYC refresh is overdue. -->

| Check | Result | Reference |
|---|---|---|
| Customer due diligence for every obligor and UBO *(Example)* | Complete, standard risk | KYC-88412; KYC/CDD Customer Profile (`compliance/kyc-cdd-profile`) |
| Sanctions and adverse media screening | No matches | Screening 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 limits | Within limits: group exposure 6% of the sector limit | Limit system |
| Related party or insider lending | None | Conflicts declaration |
| Leveraged transaction under internal definition | No: total debt to EBITDA below threshold, not sponsor-owned | Credit policy |

| ID | Policy exception | Rationale | Approver |
|---|---|---|---|
| EXC-001 *(Example)* | DSCR covenant headroom 19.1% (FY2026 base) below the 20% policy minimum | Covenant 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% headroom | Credit committee C2 |
| EXC-002 | [Exception, e.g. tenor above segment maximum] | [Why acceptable and how mitigated] | [Authority level] |

## 14. Key risks and mitigants

<!-- Guidance: List the few risks that could cause loss, with the mitigant and the residual view. Pitfall: listing every conceivable risk with "monitor" as the mitigant. -->

| ID | Risk | Mitigant | Residual |
|---|---|---|---|
| RSK-001 *(Example)* | Commerce volumes fall in a consumer downturn | Subscription base 55% of revenue; variable fulfilment costs; DSCR covenant and capex reporting | Medium |
| RSK-002 *(Example)* | US expansion consumes cash without returns | Capex covenant; base case halves management's US growth; liquidity covenant | Medium |
| RSK-003 *(Example)* | Refinancing of the 2028 bullet, due for signature by 2027-06-30 | Low leverage, growing EBITDA, listed-company market access; bank monitors refinancing from 2026-12 | Medium |
| RSK-004 *(Example)* | Cash trapped in Vietnam | Small share of cash; material subsidiary accession clause | Low |
| RSK-005 *(Example)* | Key-person dependence on founders | Succession plan reviewed by board; independent chair | Low |

## 15. Approval, conditions and sign-off

<!-- Guidance: Record the decision exactly as taken, with every condition, the person responsible and the deadline. EBA/GL/2020/06 section 5.3 links the credit decision to the loan agreement: terms in the agreement must match what was approved. Pitfall: conditions approved by the committee that never reach the documentation checklist. -->

| ID | Condition | Type | Owner | Due |
|---|---|---|---|---|
| CON-001 *(Example)* | Final documentation consistent with term sheet; definitions match sections 5 and 6 | Pre-signing | [@credit-documentation] | Before signing |
| CON-002 *(Example)* | Cash management and FX mandate with Fernhollow | Pre-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 certificate | Ongoing | [@credit-analyst] | Each quarter |
| CON-005 *(Example)* | Annual emissions and ESG data | Ongoing | [@relationship-manager] | With annual accounts |

| Decision item | Record |
|---|---|
| Decision *(Example)* | Approved with conditions CON-001 to CON-005 |
| Authority | Credit committee C2, quorum present |
| Votes and dissent | Unanimous; one member asked for the severe case to be repeated at the first annual review |
| Limits loaded | [Date and limit system reference] |
| First review | Annual Credit Review due 2026-05-31 |

```mermaid
flowchart LR
  A["RM proposal"] --> B["Credit analysis"]
  B --> C["Second-line review"]
  C --> D{"Within delegated authority?"}
  D -->|Yes| E["Credit officer decision"]
  D -->|No| F["Credit committee"]
  E --> G["Documentation and CPs"]
  F --> G
  G --> H["Limit loading and first drawdown"]
  H --> I["Monitoring and annual review"]
```

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

<!-- Guidance: Define terms once and list every regulation and guideline cited, with version and date checked. -->

### 16.1 Glossary

| Term | Meaning |
|---|---|
| CCF | Credit conversion factor: share of an undrawn commitment expected to be drawn by default |
| DSCR | Debt service cover ratio: cash available for debt service divided by interest, fees and scheduled principal |
| EAD | Exposure at default |
| EL | Expected loss: PD x LGD x EAD |
| FTP | Funds transfer pricing: the internal charge for funding and liquidity |
| IRB | Internal ratings-based approach to credit risk capital |
| LGD | Loss given default, as a share of EAD |
| PD | Probability of default over one year |
| RAROC | Risk-adjusted return on capital |
| RWA | Risk-weighted assets |
| SICR | Significant increase in credit risk (IFRS 9 staging) |

### 16.2 References

| Reference | Version or date checked | Use |
|---|---|---|
| EBA Guidelines on loan origination and monitoring, EBA/GL/2020/06 | Final 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 text | Arts 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/2025/01 | Apply from 2026-01-11; for small and non-complex institutions from 2027-01-11 at the latest | ESG risk management context |
| Interagency Guidelines Establishing Standards for Safety and Soundness, 12 CFR Part 30, Appendix A (US) | Name only, not re-checked | Loan 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 2026-10-25 | US expectations for independent credit review |
| IFRS 9 Financial Instruments, impairment section 5.5 (IFRS Foundation) | Name and section number only | Staging reference |
| Loan Market Association recommended forms | Name only | Market 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.