The term sheet and negotiation

The headline rate is the least important number on a term sheet. What determines whether a facility helps or hurts your deal is everything else: tenor, amortisation, covenants, recourse, fees, prepayment mechanics, and conditions precedent.

Tenor and amortisation define your cash flow schedule. A 20-year facility with 15-year amortisation leaves you with a 5-year balloon — a refinance event you must plan for. A 25-year fully amortising facility has higher annual debt service and lower DSCR headroom. Model both paths.

Covenants are where lenders protect themselves and where sponsors get trapped. A DSCR covenant of 1.25x sounds standard until you model a 10% rent decline and find yourself in breach. An LTV covenant of 65% sounds generous until your asset is revalued down in a downturn. Negotiate covenants you can comply with in a stress case, not just the base case.

Recourse, fees and prepayment matter too. Full recourse ties your personal balance sheet to the asset; non-recourse or limited recourse is worth paying more for. Arrangement fees, commitment fees and exit fees add 50–150 bps to the all-in cost. Prepayment penalties can lock you into a facility you outgrow. Read every line. Negotiate the terms that constrain your operational flexibility, not just the ones that affect the rate.