Credit memo

Judge add backs against the QoE, run leverage, coverage and liquidity through a downside and check structure against the term sheet. Every figure ties to the data room

Customize this Agent

DOCXXLSX15 steps

The problem

Sponsor, QoE and covenant EBITDA all differ, and the fund lends against a fourth

In HVAC distribution the last twelve months may owe more to price than volume. In 2025 Watsco sold 18 percent fewer ducted residential systems at an 8 percent higher average price, and its gross margin rose 120 basis points on pricing and mix. A leverage covenant set with the typical 25 to 35 percent cushion to the sponsor's model leaves less room, by the gap between sponsor and underwriting EBITDA

The request

Project Kestrel goes to IC Tuesday. We're leading $420 million for the sponsor's buyout of an HVAC and refrigeration distributor: $310 million unitranche, $50 million delayed draw and $60 million revolver. The data room, pricing and our positions are attached. Write the memo: business and sponsor, EBITDA reconciled to the QoE, each add back accepted, haircut or rejected, leverage and coverage at close and in a downside, recovery, liquidity through the seasonal build, terms against the term sheet, all in yield against comparables, our hold and sell down, risks, and a recommendation with conditions. Show leverage on the sponsor's EBITDA and ours, and how much of LTM was price, not volume. Flag model and term sheet conflicts; don't pick one.

Project Kestrel Lender Presentation.pdf
Project Kestrel QoE Report.pdf
Kestrel Sponsor Model.xlsx
Kestrel Term Sheet 9.29.docx
Unitranche Pricing Q3.xlsx
Fund Positions 9.30.xlsx

How Axe works

ApprovedChanges asked

Your reviewApprove, or say what to change

Approved or changes

Credit memo and modelApproved memo, model and tie out

Final reviewApprove the revised files

Revised credit memo and modelRevised files and tie out

Step

Reconcile adjusted earnings

Prompt

Sent to the model at this step

Build the bridge from reported net income to EBITDA, then to the sponsor's adjusted EBITDA, line by line, for the last twelve months the term sheet will test. Set the QoE's diligence adjusted EBITDA beside it and match every add back between the two. Judge each one: accept it when the QoE supports it with evidence, haircut it when only part is supported and state the amount kept, and reject it when it is a recurring cost, a saving not yet realized or unsupported. Look hardest at pro forma EBITDA for acquisitions closed during the period, run rate pricing and cost savings, compensation normalization, and one time costs that appear every year. Then look the other way, at gains in the period that will not repeat: unusual weather, price increases that ran ahead of cost, and customers buying ahead of a price or regulatory change. Deduct them where the QoE quantifies them and list them where it does not. What survives is our underwriting EBITDA. Then apply the term sheet's EBITDA definition, with its caps and look forward period on cost savings, to show covenant EBITDA. Show sponsor, QoE, underwriting and covenant EBITDA in one table, with the difference explained at each line. Cite the QoE page, the model tab and cell, and the term sheet section for every line.

Uses

Deal
Data room
Data room index

Produces

EBITDA bridge

What you get back

DOCXCredit memoRecommendation and conditions first, then business, EBITDA, leverage, recovery, liquidity, terms, pricing and risks

XLSXCredit modelEBITDA on four bases, cases by quarter to maturity, coverage, headroom, recovery and liquidity

Tie out reportEach figure marked tied, corrected or open

Make it yours

Use your fund's downside case and add back rules, change the covenant tests, or reorder the memo to your committee's template. Every step and every prompt can be edited

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Opens a private copy of this Agent in your workspace, ready to adapt to your own sources

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