A clock is ticking in your capital structure - do you know how to find it?

Leslie's is a pool care retailer - founded in 1963, the largest direct-to-customer brand in the US pool and spa industry, with more than 900 stores (after closing 80 of them this year). Relaxing by the pool is one of the most quintessentially American pastimes, but the company's 10-Q for the quarter ended July 4th contained disclosure that most certainly did not facilitate the relaxation of its lenders: a going concern statement and the expectation that the company "will need to seek to refinance, restructure, extend or if necessary, seek relief under applicable reorganization laws prior to maturity."

Leslie's term loan - like so many in the broadly syndicated market - has no financial covenants. The 10-Q discloses this: the $756.65m term loan "does not require us to comply with any financial covenants." With no leverage test to trip and a term loan maturity of March 9th, 2028, something else is setting the restructuring timetable.

A defined term in the revolver.

Amendment No. 7 to the 2012 credit agreement, filed with the April 2024 8-K, extended the $250m revolving facility and rewrote one definition. The Revolving Credit Termination Date is now "the earliest to occur of (i) April 3, 2029, and (ii) the date that is ninety-one (91) days prior to the final maturity of the Term Loan Facility" (Section 1.01 of the amended agreement, Exhibit A to Amendment No. 7). Applied to the term loan's March 9th, 2028 maturity, limb (ii) points to December 9th, 2027.

Three consequences follow from the amendment.

First, the spring is arithmetic, not a trigger. No default has to occur and no notice has to be given. Unless something changes, the revolver ends on December 9th, 2027 because the definition says so, and because of the passage of time.

Second, the date tracks the term loan wherever it goes. "Term Loan Facility" is defined to include the term loan agreement "as the same may be amended, restated, modified, supplemented, extended, increased, or refinanced or replaced." Extend or refinance the term loan and the revolver's springing date moves with it. The drafting gives the borrower one route to more runway - fix the term loan - and it gives the revolving lenders a place in that negotiation more than a year before their own stated maturity.

Third, the accounting calendar converts the date into pressure a year earlier. A facility terminating in December 2027 becomes a current liability in December 2026 - three months from now - and the going concern assessment runs on that horizon. The substantial doubt analysis follows the accounting calendar rather than the cash reality: the company had $45.9m of cash and only $30m drawn under the revolver at July 4th.

That's where the maintenance covenant's job went. The early warning work a leverage test used to do in this capital structure is being done by maturity mechanics instead, and not by the term loan's maturity. The instrument the market is worried about - the company's own fair value estimate for the term loan was $292.8m against $756.65m outstanding at July 4th, about 39 cents - has no covenant and a 2028 maturity. The operative date is in the revolver.

The questions for your own cov-lite exposures:

1. Which provision does the early warning work a covenant would otherwise do - a springing termination, a reporting obligation, a current liability classification?

2. What date does it track to, and who controls it?

Answer these questions and you might discover that the leverage over your term loan is held - in part - by revolving lenders whose facility matures first.