exv10w1






Exhibit 10.1




Second Amendment to Credit Agreement




     This Second Amendment to Credit Agreement (herein, the “Amendment”) is entered into as of
December 30, 2008, by and among Fifth Street Finance Corp., a Delaware corporation (the
“Borrower”), the several financial institutions party to this Amendment, as Lenders, and Bank
of Montreal, as Administrative Agent.



Preliminary Statements




     A. The Borrower, the Lenders, the Administrative Agent are parties to a certain Credit
Agreement, dated as of January 15, 2008, as amended (the “Credit Agreement”). All capitalized
terms used herein without definition shall have the same meanings herein as such terms have in the
Credit Agreement.



     B. The Borrower and the Lenders have agreed to amend the Credit Agreement under the terms and
conditions set forth in this Amendment.



     Now, Therefore, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:



Section 1. Amendment.




     Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the
Credit Agreement shall be and hereby is amended as follows:



     1.1. Section 1.2(a) of the Credit Agreement shall be amended by adding the following at the
end thereof:




The Letters of Credit may be used to finance general corporate
purposes of the Borrower (including, without limitation, issuance of
Letters of Credit to support the operations of portfolio companies
of the Borrower).



     1.2. The definitions of the terms “Base Rate” and “Eurodollar Reserve Percentage” set forth in
Section 1.3 of the Credit Agreement (Applicable Interest Rates) shall each be amended and restated
in its entirety to read as follows:



 









 






“Base Rate” means, for any day, the rate per annum equal to the
greatest of: (a) the rate of interest announced or otherwise
established by the Administrative Agent from time to time as its
prime commercial rate, or its equivalent, for U.S. Dollar loans to
borrowers located in the United States as in effect on such day,
with any change in the Base Rate resulting from a change in said
prime commercial rate to be effective as of the date of the relevant
change in said prime commercial rate (it being acknowledged and
agreed that such rate may not be the Administrative Agent’s best or
lowest rate), (b) the sum of (i) the rate determined by the
Administrative Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the rates per annum
quoted to the Administrative Agent at approximately 10:00 a.m.
(Chicago time) (or as soon thereafter as is practicable) on such day
(or, if such day is not a Business Day, on the immediately preceding
Business Day) by two or more Federal funds brokers selected by the
Administrative Agent for sale to the Administrative Agent at face
value of Federal funds in the secondary market in an amount equal or
comparable to the principal amount for which such rate is being
determined, plus (ii) 1/2 of 1%, and (c) the LIBOR Quoted Rate for
such day plus 1.00%. As used herein, the term “LIBOR Quoted Rate”
means, for any day, the rate per annum equal to the quotient of
(i) the rate per annum (rounded upwards, if necessary, to the next
higher one hundred-thousandth of a percentage point) for deposits in
U.S. Dollars for a one-month interest period which appears on the
LIBOR01 Page as of 11:00 a.m. (London, England time) on such day
(or, if such day is not a Business Day, on the immediately preceding
Business Day) divided by (ii) one (1) minus the Eurodollar Reserve
Percentage.




“Eurodollar Reserve Percentage” means the maximum reserve
percentage, expressed as a decimal, at which reserves (including,
without limitation, any emergency, marginal, special, and
supplemental reserves) are imposed by the Board of Governors of the
Federal Reserve System (or any successor) on “eurocurrency
liabilities”, as defined in such Board’s Regulation D (or any
successor thereto), subject to any amendments of such reserve
requirement by such Board or its successor, taking into account any
transitional adjustments thereto. For purposes of this definition,
the relevant Loans shall be deemed to be “eurocurrency liabilities”
as defined in Regulation D without benefit or credit for any
prorations, exemptions or offsets under Regulation D. The Eurodollar
Reserve Percentage shall be adjusted automatically on and as of the
effective date of any change in any such reserve percentage.



 









 





     1.3. The phrase “Administrative Agent’s Quoted Rate” appearing in subsection (b) of Section
1.9 of the Credit Agreement (Default Rate) shall be deleted and the phrase “Swing Line Lender’s
Quoted Rate” shall be inserted in lieu thereof.



     1.4. The definitions of the terms “Applicable Margin” and “Revolving Credit Termination Date”
set forth in Section 5.1 of the Credit Agreement (Definitions) shall each be amended and restated
in its entirety to read as follows:




“Applicable Margin” means: (a) 1.75% with respect to Base Rate
Loans and Reimbursement Obligations, (b) 3.25% with respect to
Eurodollar Loans and Letter of Credit fees, and (c) 0.50% with
respect to commitment fees.




“Revolving Credit Termination Date” means December 29, 2009 or such
earlier date on which the Revolving Credit Commitments are
terminated in whole pursuant to Section 1.12, 9.2 or 9.3 hereof.



     1.5. Section 5.1 of the Credit Agreement (Definitions) shall be further amended by adding
thereto in appropriate alphabetical order the definitions of “Monthly Investment Ratings” and
“Quarterly Watch List Reports,” each of which shall read as follows:




“Monthly Investment Ratings” means the Monthly Investment Ratings as
determined by the Borrower in a manner consistent with prior
practice and its Investment Policies and as reported in its
internally prepared Monthly Investment Ratings Report.




“Quarterly Watch List Report” means the Quarterly Watch List Report
internally prepared by the Borrower in a manner consistent with
prior practice and its Investment Policies



     1.6. Subsection (c) of Section 7.1 of the Credit Agreement (All Credit Events) shall be
amended and restated in its entirety to read as follows:




     (c) after giving effect to such extension of credit, (i) the
aggregate principal amount of all Revolving Loans, Swing Loans, and
L/C Obligations outstanding under this Agreement shall not exceed
the Revolving Credit Commitments and (ii) no Borrowing Base
Deficiency shall exist; and the Borrower shall have prepared and
delivered to the Administrative Agent a current Borrowing Base
Certificate evidencing the foregoing; and



     1.7. Subsections (a) and (c) of Section 8.5 of the Credit Agreement (Financial Reports) shall
each be amended and restated in its entirety to read as follows:




     (a) as soon as available, and in any event no later than
twenty (20) days after the last day of each calendar month, a
Borrowing Base Certificate showing the computation of the Borrowing
Base in reasonable detail as of the close of business on the last
day of such month, together with a Monthly Investment Ratings report
for the month then ended, each prepared by the Borrower and
certified to by its chief financial officer or another officer of
the Borrower acceptable to the Administrative Agent;



 









 






     (c) as soon as available, and in any event no later than
forty-five (45) days after the last day of each fiscal quarter of
each
fiscal year of the Borrower (sixty (60) days in the case of the
fiscal quarter ending December 31, 2007), copies of the valuation
and appraisal reports and reviews required to be made or obtained
pursuant to Section 8.22 hereof, together with a Quarterly Watch
List Report for the fiscal quarter then ended, each certified to as
true and correct copies of the same by its chief financial officer
or another officer of the Borrower acceptable to the Administrative
Agent;



     1.8. Subsection (b)(ii)(C) of Section 8.22 of the Credit Agreement (Portfolio Valuation and
Diversification Etc.) shall be amended and restated in its entirety to read as follows:




     (C) Internal Review. The Borrower shall conduct internal
reviews of (x) Portfolio Investments for which market quotations are
readily available at least once each calendar week and (y) Portfolio
Investments for which market quotations are not readily available at
least once each calendar month, each such review shall take into
account all events of which the Borrower has knowledge that
adversely affect the value of the Portfolio Investments. If the
value of any Portfolio Investment as most recently determined by the
Borrower pursuant to this Section 8.22(b)(ii)(C) is lower than the
value of such Portfolio Investment as most recently determined
pursuant to Section 8.22 (b)(ii)(A) and (B), such lower value shall
be deemed to be the “Value” of such Portfolio Investment for
purposes hereof; provided that the Value of any Portfolio Investment
of the Borrower and its Subsidiaries shall be increased by the net
unrealized gain as at the date such Value is determined of any
Hedging Agreement entered into to hedge risks associated with such
Portfolio Investment and reduced by the net unrealized loss as at
such date of any such Hedging Agreement (such net unrealized gain or
net unrealized loss, on any date, to be equal to the aggregate
amount receivable or payable under the related Hedging Agreement if
the same were terminated on such date).



     1.9. Section 8.23 of the Credit Agreement (Calculation of Borrowing Base) shall be amended by
deleting the word “and” at the end of subsection (d), deleting the period at the end subsection (e)
and replacing therewith the phrase “; and” and the addition of new subsections (f) and (g) in the
appropriate alphabetical sequence, which shall read as follows:



 









 






     (f) The aggregate Value of Portfolio Investments included in
the Borrowing Base at any time relating to issuers with a rating of
“4” (or its equivalent) on the Borrower’s internal investment rating
scale as reflected on the most recent Monthly Investment Ratings
report provided to the Administrative Agent shall not exceed 7.5% of
the Borrowing Base (and the Advance
Rate applicable to any portion of Portfolio Investments in excess
thereof shall be deemed to be 0.0%); and




     (g) The Advance Rate applicable to that portion of the
aggregate Value of the Portfolio Investments relating to issuers
with a rating of “5” (or its equivalent) on the Borrower’s internal
investment rating scale as reflected on the most recent Monthly
Investment Ratings report provided to the Administrative Agent shall
be 0%.



     1.10. The definition of “Performing” set forth in Section 8.23 of the Credit Agreement
(Calculation of Borrowing Base) shall be amended and restated in its entirety to read as follows:




“Performing” means (a) with respect to any Portfolio Investment that
is debt, the issuer of such Portfolio Investment is not in default
of any payment obligations in respect thereof after the expiration
of any applicable grace period, and (b) with respect to any
Portfolio Investment that is Preferred Stock, the issuer of such
Portfolio Investment has not failed to meet any scheduled redemption
obligations or to pay its latest declared cash dividend, after the
expiration of any applicable grace period, and in each case referred
to in clause (a) and (b) above such payment or redemption obligation
is not more than sixty (60) days past its original due date (without
regard to any applicable grace period).



     1.11. Subsections (a) and (d) of Section 8.25 of the Credit Agreement (Financial Covenants)
shall each be amended and restated in its entirety to read as follows:




     (a) Minimum Shareholders’ Equity. The Borrower will not permit
Shareholders’ Equity at any time to be less than 85% of
Shareholders’ Equity as reported in the Borrower’s December 31,
2008, balance sheet delivered pursuant to Section 8.5(b) hereof.




     (d) Interest Coverage Ratio. As of the last day of each fiscal
quarter of the Borrower, the Borrower shall maintain a ratio of (i)
EBIT for the four fiscal quarters of the Borrower then ended, to
(ii) Interest Expense for the same four fiscal quarters then ended
of not less than 1.50 to 1.0.



 









 





     1.12. The following schedules and annexes attached to the Credit Agreement and the Security
Agreement are hereby amended and restated by the schedules and annexes attached to this Amendment:



     a. Credit Agreement: Schedule 6.10(A).



     b. Security Agreement: Annex 2 and Annex 3.



Section 2. Conditions Precedent.




     The effectiveness of this Amendment is subject to the satisfaction of all of the following
conditions precedent:



     2.1. The Borrower, the Administrative Agent, and the Lenders shall have executed and delivered
this Amendment.



     2.2. The Borrower shall have provided the Administrative Agent a current Borrowing Base
Certificate computed after giving effect to this Amendment, and the sum of all Revolving Loans,
Swing Loans, and L/C Obligations shall not exceed the current Borrowing Base as reflected therein.



     2.3. The Borrower shall have provided the Administrative Agent copies of the certificates of
good standing for the Borrower (dated no earlier than 30 days prior to the date hereof) from the
office of the secretary of state of its incorporation or organization and of each state in which it
is qualified to do business as a foreign corporation or organization.



     2.4. The Administrative Agent and the Lenders shall have received copies of resolutions of the
Borrower’s Board of Directors authorizing the execution, delivery and performance of this
Amendment.



     2.5. The Administrative Agent and the Lenders shall have received the Borrower’s audited
financial statements and audit report for the fiscal year ended September 30, 2008.



     2.6. The Borrower and the Administrative Agent shall have entered into a fee letter dated
December 30, 2008, and the Borrower shall have paid all fees referred to therein then due.



     2.7. Legal matters incident to the execution and delivery of this Amendment shall be
satisfactory to the Administrative Agent and its counsel.



Section 3. Representations.




     In order to induce the Lenders to execute and deliver this Amendment, the Borrower hereby
represents to the Lenders that as of the date hereof, after giving effect to the amendments set
forth in Section 1 above, (a) the representations and warranties set forth in Section 6 of the
Credit Agreement and in the other Loan Documents (as amended hereby) are and shall be and remain
true and correct in all materials respects (except that the representations contained in
Section 6.5 shall be deemed to refer to the most recent financial statements of the Borrower
delivered to the Lenders) and (b) the Borrower is in compliance with the terms and conditions of
the Credit Agreement and the other Loan Documents and no Default or Event of Default exists or
shall result after giving effect to this Amendment.



 









 





Section 4. Miscellaneous.




     4.1. The Borrower heretofore executed and delivered to the Administrative Agent and the
Lenders the Collateral Documents. The Borrower hereby acknowledges and agrees that the
Liens created and provided for by the Collateral Documents continue to secure, among other things,
the Obligations arising under the Credit Agreement as amended hereby; and the Collateral Documents
and the rights and remedies of the Administrative Agent and the Lenders thereunder, the obligations
of the Borrower thereunder, and the Liens created and provided for thereunder remain in full force
and effect and shall not be affected, impaired or discharged hereby. Nothing herein contained
shall in any manner affect or impair the priority of the Liens created and provided for by the
Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect
to this Amendment.



     4.2. Except as specifically amended herein, the Credit Agreement shall continue in full force
and effect in accordance with its original terms. Reference to this specific Amendment need not be
made in the Credit Agreement, the Notes, or any other instrument or document executed in connection
therewith, or in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being
sufficient to refer to the Credit Agreement as amended hereby.



     4.3. The Borrower agrees to pay on demand all reasonable costs and expenses of or incurred by
the Administrative Agent in connection with the negotiation, preparation, execution and delivery of
this Amendment and the other instruments and documents to be executed and delivered in connection
herewith, including the reasonable fees and expenses of counsel for the Administrative Agent.



     4.4. This Amendment may be executed in any number of counterparts, and by the different
parties on different counterpart signature pages, all of which taken together shall constitute one
and the same agreement. Any of the parties hereto may execute this Amendment by signing any such
counterpart and each of such counterparts shall for all purposes be deemed to be an original.
Delivery of a counterpart hereof by facsimile transmission or by e-mail transmission of an Adobe
Portable Document Format File (also known as an “PDF” file) shall be effective as delivery of a
manually executed counterpart hereof. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of Illinois (without regard to principles of
conflicts of laws).



[Signature Page to Follow]




 









 





     This Second Amendment to Credit Agreement is entered into as of the date and year first above
written.



	 	 	 	 	 	 	 	 	 
	 	 	Fifth Street Finance Corp.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title
	 	 	 	 
	 

	 	 	 	 	 	 	 	 





     Accepted and agreed to.




	 	 	 	 	 	 	 	 	 
	 	 	Bank of Montreal, as Administrative Agent	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BMO Capital Markets Financing, Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title