The Term Sheet War

Decompose the term sheet before responding to it, because its two halves are different kinds of fact. The 40 basis points is a market fact: it is what a hungry competitor charges for this risk this quarter, and the market does not care that your rate card was set eighteen months ago. Price moves; matching a genuine market price for a nine-year client is not weakness, it is commerce. The 65% advance rate on the inventory is a different animal — that is a credit judgment, and it is wrong. Seventy percent of this warehouse is finished goods wearing other companies' labels. Inside those customer relationships the stock is worth full value. At a liquidation — the only scenario an advance rate exists for — branded stock is worth roughly its cap value as scrap, because nobody else may legally sell it. Someone at the other bank advanced against a stock code without walking the warehouse.

Read the options against that split. A concedes both halves — it defends the relationship by adopting the competitor's mistake, holding a mispriced structure for nine more years because the client threatened to leave once. C concedes neither — it defends a stale price under a relationship flag, and it will lose honestly: the CFO is not bluffing, the 40 points are real, and a bank that answers a market move with sentiment teaches clients to shop. D mistakes shopping for leaving; a CFO who forwards a term sheet with "we'd rather stay" has told you, in writing, that the door is open. Nine-year clients are allowed to check the market. Punishing them for it is how the market wins.

The senior banker's read is B, executed in two moves before Friday. First, reprice to market — fully, not halfway, because a grudging partial match reads as confirmation that the old margin was rent. Second, hold the borrowing base and the 50% advance, and give the CFO the two sentences that turn structure from an irritant into information: "Their 65% assumes your stock sells at label value to a stranger. If Torrent Bay ever has a bad enough year that advance rates matter, you will want the bank whose numbers were real when the good years were setting them." Then the offer that shows the structure is priced, not dogmatic: demonstrate a genuine resale channel for the branded stock, and the advance rate moves with the evidence.

And if the client takes the competitor's structure anyway? Then the deal is correctly lost, and that phrase is meant precisely. A term-sheet war is rarely about the borrower — it is about which bank's mistake gets to win. The competitor bought a position that misprices its own downside; outbidding them means paying more for the same mistake, with your name on it. The walk-away in this file is not dramatic. It is embedded in the structure you decline to abandon: concede price when the market moves, and never concede structure when the file hasn't changed. The client who stays on those terms has learned what your signature means. The client who leaves was priced to leave — by the other bank.