How to write an IC memo

What an IC memo is for

An investment committee memo exists to get a decision. The committee has limited time, they've read dozens of these, and they are looking for one thing first: should we lend, on what terms, and what could make us wrong? Everything in the memo should serve that question.

A memo is not a research report. You aren't proving how much you know about the company. You're making a recommendation and showing the committee you've done the work to back it, including the work that might argue against you.

The structure that works

Most credit teams use a version of the same order. Use it unless the case tells you otherwise.

1. Recommendation and summary. Approve, approve with conditions, or decline, in the first sentence. Then the facility, the size, pricing, and the two or three reasons.
2. Transaction overview. Borrower, sponsor if there is one, use of proceeds, sources and uses, and where this loan sits in the capital structure.
3. Business and industry. What the company does, how it makes money, and what drives its cash flow. Keep it short and specific to credit.
4. Key credit risks. The two or three risks that actually drive repayment, ranked, each tied to evidence in the case.
5. Financial analysis. Leverage, interest coverage, free cash flow and liquidity, with the trend over the historical period.
6. Downside case. A stress grounded in the company's own history or a credible industry scenario, with the resulting metrics.
7. Structure and terms. Do the covenants, amortization and documentation protect the lender? What would you change?
8. Conditions or walk-away. What would have to be true for you to approve, and what would make you decline.

Lead with the recommendation

Put the call in the first sentence. "We recommend approving the senior secured term loan, subject to two conditions" is a stronger opening than three paragraphs of company history.

Back the call with specific reasons, not adjectives. "Strong free cash flow" is an adjective. "Free cash flow after capex covered interest more than twice in each of the last three years" is a reason.

• State the facility type, size and seniority so the reader knows what they're approving.
• Give two or three reasons, most important first.
• If you have conditions, name them up front, not at the end.

Make every number support a claim

Committees trust memos where the numbers tie. Before you submit, check that every figure you quote reconciles to the case: debt over EBITDA, EBITDA over interest, and free cash flow built from its parts.

• Show the calculation once. "Total debt of X over EBITDA of Y gives leverage of Z" lets the reader check you in one glance.
• Use the right period. Pro forma metrics for a new structure need pro forma debt and interest, not last year's.
• Build free cash flow properly. Start from EBITDA and subtract cash interest, cash taxes, capex and the change in working capital. Missing one line is a common error.
• Look at the trend. One year is a data point. Three or four years show whether margins and leverage are improving or slipping.

Write the downside an IC would write for you

The downside case is where memos most often fall short. A gentle haircut to EBITDA isn't a stress test. A committee will ask what happened to this company, or companies like it, the last time conditions turned.

1. Find the anchor: the worst historical margin, the largest customer loss, a cost spike, or a recession-year decline.
2. Apply it to today's business and recompute EBITDA.
3. Show leverage, coverage and liquidity under the stress.
4. Compare the stressed metrics with the covenant levels to show headroom, or a breach.
5. Say what the lender would do: the cure, the amendment, or the recovery if it goes wrong.

Judge the structure, don't describe it

Restating the term sheet earns little credit. The committee already has it. Your job is to say whether the terms protect the lender and what you would change.

• Is covenant headroom tight enough to catch trouble early, and loose enough not to trip on noise?
• Do any baskets let value leave the credit, such as restricted payments, incremental debt or asset sales?
• Does the maturity of any other debt come before yours?
• Is the pricing fair for the risk compared with similar loans?

Length and polish

Most strong practice memos run 500 to 1,000 words. Longer isn't better. Cut any sentence that doesn't help the decision, and replace words like "manageable" or "solid" with the number that proves it.

• Use short headings so the reader can jump to the section they care about.
• Use a small table for the key metrics instead of a paragraph of numbers.
• Read it once as a skeptical committee member. Mark every claim without a number.

When you're ready, pick a case and submit your draft. How grading works explains what each of the six scores rewards.