Permitted baskets
What are permitted baskets in a facility agreement?
ONE OF 366 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Permitted baskets are carve-outs from a facility agreement's restrictions that let a borrower borrow, grant security, sell assets, invest or make distributions up to a stated amount without asking the lender. A basket may be a fixed sum, such as US$5m of other debt, or the greater of a fixed sum and a share of EBITDA, so that it grows with the business. Lenders read the baskets together, because amounts that look small one by one can combine, and a basket that allows debt ranking ahead of or alongside the lender can weaken its position more than the headline figures suggest.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WHAT IT IS NOT
A negative pledge is the restriction itself; a permitted basket is an agreed exception to it, or to one of the other restrictions in the agreement.
// WORKED IN
// NEXT TO IT
- Covenant headroom
- Negative pledge
- Condition precedent (CP)
- Event of default
- Covenant waiver
- Reservation of rights
- Term sheet
- Condition subsequent
- Review event
- Repayable on demand
- Material adverse change (MAC) clause
- Cross-default
- Change of control clause
- Cure period
- Compliance certificate
- Information undertakings
- Liquidity covenant
- Equity cure
- Springing covenant
- Covenant reset
- Covenant mulligan
- Covenant-lite (cov-lite)
- Incurrence covenant
- Test date (covenant)
- Distribution lock-up
- Mandatory prepayment
- Clean-up period
- Certain funds
- Yank-the-bank clause (replacement of lender)
- Capex covenant
- Guarantor coverage test
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