How the calculator maps a selected builder route into a teaching estimate.

The doctrine (start here)

The builder basket is usually described as a drafting bucket. That understates it. Economically, it is the sponsor's running option to extract value from the restricted group as earnings accumulate.

The builder basket is not a basket. It is an Asian-style, path-dependent claim on cumulative CNI. Strong years create capacity that can persist. Weak years may reduce it. A zero floor can turn that path into a one-way ratchet.

The calculator is built to make four distinctions visible:

• Selected-route capacity estimate is the amount produced by the drafting inputs chosen in the tool; it is not a legal conclusion.
• Effective extraction is the portion of that capacity the sponsor is expected to use after gates, frictions, and exercise probability.
• Base-case bps bridge is a teaching estimate of that deterministic extraction, scaled by debt face and a quoted-spread input.
• Builder payoff estimate is the discounted teaching estimate of the CNI-builder leg across simulated CNI paths.

Those things should not be collapsed. The selected-route amount is a teaching output from chosen inputs, not a document opinion. Effective extraction is a behavior-adjusted payoff proxy. The bps bridge and stochastic panel are assumption-dependent teaching estimates.

The formula

For the CNI builder component, the theoretical object is a discounted expectation of a path-dependent payoff under a specified measure. The public tool does not establish that measure. Its CNI sliders define a user-selected scenario centerline and the stochastic layer adds annual shocks around that path:

where BT is the modeled terminal gross builder after applying the selected accumulation rules, P is prior restricted-payment usage, q is the gate / exercise probability, and r is the risk-free discount rate. Starter baskets, reloads, equity contribution credits and leakage routes are modeled separately. Actual availability depends on the full agreement and its interactions.

The bps line above is a teaching spread bridge. A production desk model should convert option PV with the risky PV01 of the debt: spread_equivalent_bps = option_PV / RiskyPV01, using the actual cash-flow profile, discount curve and survival assumptions.

The browser approximates the expectation with 10,000 seeded Monte Carlo paths using antithetic variates. Per path, the covenant mechanics are:

The negative-CNI treatment is deliberately lender-stricter than simply applying the build percentage to losses. Positive CNI builds at the selected share; loss years reduce the basket dollar-for-dollar unless the zero floor blocks the reset. That is the economic point of the zero-floor toggle.

The inputs

The tool has four groups of inputs: scale and CNI centerline, drafting terms, valuation bridge assumptions, and stochastic CNI assumptions.

Input	Symbol	Range	What it does
Closing EBITDA	EBITDA0	€50m–€500m	Scale denominator. Capacity / EBITDA is the fastest read on covenant looseness.
Hold period	N	3–7 yrs	Number of CNI years included in the path. Later year sliders are ignored when the hold is shorter.
Yearly CNI path	CNI1..7	€-60m–€120m	User-selected scenario centerline. The tool does not verify whether the path is market-implied, historical or a management case.
Starter basket	S	€0m–€150m	Day-one RP capacity negotiated at closing.
CNI builder share	b	0%–75%	Share of positive CNI added to the builder. 50% is the standard teaching case.
General basket	G	€0m–€125m	Additional general RP capacity.
Equity / excluded reload	E	€0m–€150m	Equity proceeds or excluded contribution capacity that reloads the RP package.
Declined proceeds	D	€0m–€100m	Declined excess cash flow / repayment proceeds that can be recycled into capacity.
Retained asset-sale proceeds	A	€0m–€150m	Included only when the asset-sale leakage toggle is on.
Prior RPs / usage	P	€0m–€250m	Prior distributions and earlier basket usage. Subtracted from gross builder capacity.
Zero floor	floor	on / off	When on, cumulative builder capacity cannot go below zero after a loss year.
Unrestricted-sub route	US	on / off	Illustrates how investment capacity can move value outside the restricted group, before anti-J.Crew blockers.
Debt face	Debt	€200m–€2,000m	Denominator for converting extraction into spread-equivalent bps.
Quoted spread input	s	150–800 bps	User-supplied running spread used only in the teaching bridge.
Exercise / gate probability	q	0%–100%	Compact proxy for leverage gates, exercise probability, documentation blockers, and sponsor behavior.
CNI shock volatility	σCNI	0%–80% of EBITDA	Annual normal shock size around the selected scenario centerline used by the Monte Carlo layer.
Risk-free discount rate	r	0%–12%	Teaching assumption used to discount the simulated, gate-adjusted builder payoff.

The bps bridge

After the selected-route amount is computed, the tool separates it from an effective-extraction proxy. The deterministic Base-case bridge is an assumption-dependent teaching estimate under one CNI centerline:

This is a workbook-style covenant-economics teaching bridge. It is not a market-price or legal-capacity conclusion.

Notice what is not happening. The tool is not claiming that every modeled euro is legally available or will be extracted. Only the builder component is damped by the gate probability in the base teaching model; starter and reload inputs are treated as immediately usable inside the simplified scenario.

How the stochastic CNI layer works

The stochastic panel isolates the CNI builder leg. It does not revalue the starter basket, general basket, equity reload, declined proceeds or asset-sale leakage. Each simulation path:

• starts from the selected scenario CNI centerline,
• adds an annual normal CNI shock scaled by closing EBITDA,
• applies the same positive-CNI build, loss-year reduction, prior-RP deduction and zero-floor drafting mechanics,
• multiplies the terminal builder payoff by the gate probability, discounts it at the risk-free rate, and averages across 10,000 seeded paths.

The result is a builder option PV, a teaching bps bridge and a Monte Carlo standard error. This is the options-theory layer behind the tool, so the calculator leads with this stochastic bps readout while keeping the deterministic 63 bps bridge as a comparison.

A worked example (base case)

The default case uses:

• Closing EBITDA: €100m
• Hold period: 5 years
• CNI path: €10m, €25m, €-40m, €30m, €40m
• Starter basket: €40m
• CNI builder share: 50%
• General basket: €25m
• Debt face: €600m
• Market spread: 425 bps
• Exercise / gate probability: 70%
• CNI shock volatility: 30% of EBITDA
• Risk-free discount rate: 4.5%

The cumulative builder path is:

So the base case produces:

The deterministic bridge rounds those to a €100m selected-route capacity estimate, €90m effective-extraction proxy, and a 63 bps teaching bridge.

The stochastic readout then runs the same CNI centerline through the Monte Carlo layer. Under the default 30% CNI volatility and 4.5% risk-free discount rate, it estimates only the isolated CNI-builder leg. That bps teaching estimate should not be added mechanically to the deterministic 63 bps bridge.

How to read the charts

The page has four visual checks:

• Stochastic CNI option layer shows the distribution of risk-free discounted, gate-adjusted builder payoffs across simulated CNI paths.
• Selected-route stack shows the modeled exit-year amount by source: starter, CNI builder, reloads and asset-sale leakage.
• Builder path compares the zero-floor path to the no-floor path. This isolates the value of a sponsor-friendly zero-floor drafting point.
• Exit capacity by source shows how the capacity stack evolves over the hold period, not just at exit.

The line chart intentionally shows gross cumulative builder before prior usage. The stack chart shows the modeled amount after prior usage. That split is an arithmetic teaching view, not a legal opinion on availability at the measurement date.

Pricing-method alignment

The math follows standard option-pricing discipline, as long as you read the web tool for what it is: a browser teaching model with a seeded Monte Carlo layer, not a production pricing engine.

• Option-pricing alignment. The model uses the right objects: payoff, path, exercise probability, discounting, Monte Carlo expectation, and an explicit teaching spread bridge.
• Path-dependent pricing fit. The builder basket is Asian-style and path-dependent, so a full valuation belongs in Monte Carlo or a specialized exotic method. Closed-form terminal-payoff methods are not the natural first tool for this covenant payoff.
• Asian-option analogy. The builder is not a literal equity Asian option. It is Asian-style because the payoff depends on accumulated CNI over the life of the credit, not just terminal CNI.

That is why the tool treats the builder as a discounted expectation of a path-dependent payoff. The simplified layer simulates CNI only. A fuller model would simulate CNI, EBITDA, debt, cash, leverage tests, sponsor exercise policy and documentation blockers together.

Assumptions & what they cost you

Seeded CNI-only Monte Carlo

The stochastic layer uses 10,000 seeded paths around the selected scenario centerline. That makes the browser readout stable and useful for teaching, but it is not a calibrated market model.

No explicit leverage process

The leverage gate is represented by one probability slider. A full model would simulate EBITDA, debt, cash, permitted debt incurrence, and leverage tests together.

Simplified CNI definition

Actual CNI includes add-backs and drafting-specific exclusions. The tool treats each yearly CNI input as the already-defined covenant CNI number.

Simplified extraction policy

Sponsors do not mechanically extract every permitted euro. The gate probability compresses exercise policy, leverage tests, board decisions, tax leakage, and drafting blockers into one teaching input.

No interaction with other covenants

Real RP capacity interacts with debt baskets, investments, unrestricted subsidiaries, asset-sale proceeds, portability, and LME blockers. The tool isolates the RP builder basket so the economics are visible.

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Where this sits in the LevFin Book

This page is a hands-on preview of the contingent-rights framework in Part VII: Contingent Rights and Teaching Sensitivities. The make-whole calculator shows a rate-driven call. The builder basket shows a path-dependent value-extraction option. The next step is to repeat the same treatment across the rest of the covenant grid: restricted payments, debt incurrence, asset sales, equity cures, portability, and LME protections.

If the calculator clicks, the book is the full map.