What a lender actually underwrites in a promoter facility

A promoter facility is not underwritten on the promoter. It is underwritten on what happens to the pledged security in a downside, and how quickly.

Borrowers preparing for a promoter or holding-company raise tend to build the case around the operating business: revenue, margin, the growth story. Lenders in this instrument are asking a narrower question. If the pledge has to be invoked, what is the security worth, how liquid is it, what consents are needed to sell, and how long does the process take. A pledge over listed shares with adequate free float answers those questions differently from a pledge over an unlisted subsidiary, even where the underlying businesses are identical.

The corollary is that cover ratios and top-up triggers are the real negotiation. A facility at attractive pricing with a tight top-up trigger can force the promoter to post additional security in exactly the market conditions where they have least capacity to, which converts a financing into a forced sale.

Prepare the security case first, and negotiate the trigger before the coupon.