After a brief hiatus, high-water marking is once again testing the waters of the US loan market. High-water marking first appeared in US loans in early 2022 but failed to gain traction.¹ After popping up again at the start of 2024² and earlier this year³, high-water marking has once again been spotted in draft agreements in recent months and appears to be clearing the market in a number of instances.

As a refresher, high-water marking of EBITDA is a self executing method of increasing the size of grower baskets (i.e., “the greater of $XX and YY% of EBITDA”), meaning that the borrower gets the benefit of increased EBITDA without suffering the detriment of falling EBITDA. The capacity of all baskets tied to EBITDA will remain elevated even after the reason for the elevation has evaporated. It is a completely unjustifiable position, and lenders should push back against such attempts.

From mid-2024 to December 2025, we saw high-water marking appear in 35 term sheets or agreements we reviewed, all of which were sponsor deals.

For the same period, high-water marking made it beyond the term sheet stage to 26 draft credit agreements. Of these agreements:

• Clayton, Dubilier & Rice was the most prolific sponsor, appearing in six such agreements;
• KKR was in second place, appearing in four such agreements; and
• Stone Point Capital rounded out the top three, appearing in three such agreements.

Whilst we don’t typically see final executed agreements for all draft agreements that we review, high-water marking made it through to at least 8 final executed agreements over the same period. On a positive note, there are at least 6 final executed agreements where high-water marking did not make it beyond the term sheet or draft agreement stage. Lenders should continue to push back against attempts toinclude high-water marking in deal documents, and the earlier this can happen in the documentation stage, the better.

It is important to note that the high-water marking provisionsare typically included in Article I of the credit agreement, either in the definitions section or in the interpretive section. It is a reminder that these sections should not be dismissed as boilerplate and should always be reviewed closely.

1 See our Special Report on the topic here (acess required).

2 See our Special Report on this topic here (acess required).

3 See our Special Report on this topic here (acess required).

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