The exit test is run before the vehicle exists.

A structure is designed to be exited, and the only cheap moment to test whether it can be is before it is formed. The test is mechanical. Take each exit the policy names: a sale of the asset, a sale of the holding company, a sale of the portfolio whole, an admission to trading, a distribution in kind, a continuation. For each, walk the transaction through the structure as drawn and name, at every step, the party who must act, the consent that party needs, the document that governs it, the charge that falls and the time it takes. A step with no answer is a route the structure cannot take. A step with an answer nobody has priced is the next negotiation. The table that results is one page, and it is the page the register reads when it asks how it gets out, the page the lenders read for the consents they have agreed, and the page the committee reads at every exit as the procedure it runs on.

This note sets out what the test is and why it is run before formation, the six routes and the steps each passes through, the parties and the consents at each step, the charges that fall at the registry on each, the time each takes in each state, what the test produces and how an empty cell is treated, why it is skipped and what skipping costs, the re-run on every change, the register's and the lenders' readings, a comparison, a worked test as a type, cases, what each party holds, the sequence, questions, terms and what to read.

What the test is

The exit test is a walk-through of each exit route against the structure as designed, recording at each step the party, the consent, the document, the charge and the time. It is run on the structure chart and the draft documents, before any entity is formed, by the structure's designer with counsel in each state and the tax adviser, and it takes a fortnight with the documents in draft. It is the exit equivalent of the administrator's walk-through of a year's operations: a mechanical reading that finds what a narrative design cannot see.

The six routes

A sale of the asset. The asset company sells the asset to a buyer in the asset's state. The steps: the asset company's board approves; the lender consents to the disposal and is repaid or the facility assumed; the grantor consents where there is a usufruct or a masterplan; the regulator approves where the asset is licensed; the registry records the transfer to a buyer in the permitted category; the charge falls at the registry; the proceeds are distributed up the chain through each layer's board and each lender's release; the waterfall runs.

A sale of the holding company. The layer above the asset company sells its shares in it, or a higher layer sells a lower one. The steps: the seller's board approves; the buyer is a person the asset state permits to own the holding company and, through it, the asset; the lender's change-of-control clause is satisfied; the tax adviser's position on a share sale in the holding jurisdiction and the asset state is read; the registry records the share transfer; the charge, if any, falls; the proceeds are distributed.

A sale of the portfolio whole. The portfolio holder, or every asset company at once, is sold to one acquirer. The steps: every asset company's consents at once; the portfolio holder's seat as one the acquirer can own; the absence of cross-guarantees; the transfer charges in each state priced into the price; every lender's consent or repayment; the distribution up.

An admission to trading. The platform or a successor meets the public tier's conditions on the day. The steps: the chain's readability; the register's breadth and the side letters' fall-away; the portfolio within the public limits; the governance on the public model; the listing authority's clock.

A distribution in kind. The asset or the holding company is distributed to the register. The steps: each holder's capacity to receive in the asset's state; the registry's recording of transfers to several holders; the lender's consent to the disposal; the grantor's consent to each assignee; the valuation; the alternatives for holders who cannot receive.

A continuation. The portfolio is transferred to a new vehicle under the same manager. The steps: the committee's approval on independent advice; the tested price; the lenders' consents; the asset states' registries for the transfer; the placement of the new vehicle's units in each holder's state; the disclosure of the manager's economics.

The parties and the consents

At each step the test names who acts and whose consent they need. The asset company's board, and its minute. The lender, under its disposal, change-of-control and release provisions, at a price stated or to be negotiated. The grantor or the master developer, under the grant, on its own clock, for a class of transferees. The regulator, under the licence, for a class of buyers, in its own time. The co-investor or the majority holder, under the shareholders' agreement, with a pre-emption or a drag. The registry, under its practice, for a buyer in the permitted category. The committee, under the constitution, for a related-party dealing. Each holder, under its own rules, for what it may receive. The intermediary in each state, for the placement of a successor's units. A consent with a named holder, a stated price and a known time is a step; one with none of those is a cell to fill.

The charges

At each registry the test records the charge that falls: the Kingdom's transaction tax and the additional charge on a non-Saudi owner's disposition of real estate; Qatar's registration charges and the grantor's terms; Kuwait's registration charges; India's stamp duty by state and the pricing rule's cap on a sale to a resident; the holding jurisdiction's tax on a share sale or a distribution; the centre's own charges. The charge is priced into the route, and a route whose charge exceeds its advantage over another route is a route the policy ranks below it.

The time

At each step the test records the time: a board's notice period, a lender's consent process, a grantor's internal approval, a regulator's timetable, a registry's recording period, a listing authority's clock, an intermediary's placement clock for a successor. The route's time is the sum along its longest path, and the term note's arithmetic takes the longest route's time as the exit component.

What the test produces

A one-page table: routes down the side, steps across, and in each cell a party, a consent, a document, a charge and a time. Beneath it, for each route, a verdict: open, open at a price, open on a condition, or closed. A closed route is removed from the policy, or the structure is redrawn so that it opens: a cross-guarantee removed, a blocker re-sited, a side letter made self-terminating, a lender's carve-out negotiated, a grantor's advance consent obtained. A route open at a price has the price written beside it. A route open on a condition has the condition as a step on the sequence with an owner and a date.

Why it is skipped

Because at formation the exit is years away and the capital is weeks away, and the party who bears the test's cost is the party who least wants to delay the close. The test takes a fortnight with the documents in draft. It takes a year with the documents signed and the lender, the co-investor, the grantor and the registry each holding a consent the fund needs, and it takes a quarter of value at the exit itself, when every consent is priced by a party that knows the fund must sell.

Why the test finds what the design cannot

A structure is designed forward: from the capital, through the vehicle and the chain, to the asset. The exit runs the other way: from the asset, through the chain, to the capital, through every consent, registry and charge in sequence. A design read forward shows what each layer does; the same design read backward shows what each layer needs before it can be undone, and the two readings find different things. A cross-guarantee reads forward as a lender's comfort and backward as a chain that cannot be separated. A side letter reads forward as a holder's concession and backward as a right a public register cannot honour. A blocker reads forward as a tax position and backward as a company the buyer must take. The test is the backward reading, and it is the only reading that sees the exit.

The routes ranked

The table also ranks the routes, because a policy that names six routes has named them in an order, and the order is the test's. The route with the fewest consents, the lowest charge and the shortest time is the first; the route that depends on a counterparty's clock is behind it; the route that needs a reshaping of the portfolio is behind that; the route closed as designed is removed. The ranking is in the memorandum's exit policy, and the register reads the first route as the expected one and the others as the alternatives. A manager that names the public exit first and the parcel-by-parcel sale last has told the register something the test may contradict.

The cost of each cell

A cell is filled by a step, and the step has a cost: a lender's carve-out negotiated at signing for a concession on margin; a grantor's advance consent obtained for a commitment to the programme; a co-investor's drag bought with a higher entry price; a side letter's fall-away agreed at the letter's signing; a holder's capacity recorded at admission for an afternoon of its counsel's time. The test prices each step at formation and the structure paper carries the total, which is the cost of keeping the routes open. The total is compared against the value of the routes, and a route whose steps cost more than its advantage is a route the policy drops. The comparison is rarely close, because the steps are cheap at formation and the routes are the fund's whole value at exit.

Where it surfaces

At the first exit, when a consent appears that the table did not show.

At the acquirer's diligence, when the chain cannot be separated.

At the distribution, when the holders cannot receive.

At the listing authority, when the chain cannot be read.

At the continuation, when the placement of the successor in three states was not on the table.

At the re-run that was never done, when a new facility or a changed law closed a route.

The cost of getting it wrong

A route that fails at exit costs the exit: a sale at a discount, a distribution abandoned, an admission delayed past the term, a continuation with a consent inside its price. It costs the register's trust, which read a policy the structure could not execute. The test costs a fortnight at formation with the documents in draft, a re-run on each change, and the steps' prices, each of which is smaller at formation than at exit by the difference between asking and needing.

The re-run

The test is re-run on every change that reaches it: a new facility with its own clauses, a new co-investor with its own rights, a change in a state's ownership law or registry practice, a renegotiated treaty, a new side letter, an amendment to the constitution, a change of manager. Each change can close a route that was open, and a table re-read annually is a table that shows the closures before the exit finds them.

The register's and the lenders' readings

The register reads the table at subscription as the answer to how it leaves, and a register that receives it subscribes to exits it can see. The lenders read it as the structure's own reading of their consents, and a lender whose consent the table names with a price at signing is a lender that has agreed the price. The committee reads it at every proposed exit as the procedure the exit runs on.

By route · by step	Board	Lender	Grantor or regulator	Co-investor	Registry and charge	Committee	Time
Sale of the asset	Asset company	Disposal consent; repayment or assumption	Consent to the buyer; the regulator's approval	Pre-emption or drag	Transfer to a permitted buyer; the charge	Related-party if the buyer is connected	A quarter to a year
Sale of the holding company	Seller's board	Change of control	As above, for the indirect change	As above	Share transfer; any charge	As above	A quarter to a year
Portfolio whole	Every board	Every lender	Every grantor and regulator	Every co-investor	Every registry; every charge	The committee	Up to a year
Admission	The platform's	Confined security unaffected; otherwise consent	None, unless licensed assets	Letters fall away	The listing authority	The committee and the holders	The listing clock, a year
Distribution in kind	The platform's	Disposal consent	Consent to each assignee	Pre-emption	Transfers to several; charges on each	Related-party as between holders	A quarter to a year
Continuation	The old fund's	Change of control	For the transfer	As above	The transfer; the placement of the successor	On independent advice	Two quarters to a year

A timeline, as a type

Month one: the policy's six routes listed; the draft structure drawn. Month two: the test run with counsel in each state and the tax adviser; the table produced; two routes closed as designed. Month three: the structure redrawn, the cross-guarantees removed, the blocker re-sited; the lenders' carve-outs negotiated at the first facility's term sheet; the grantor's advance consent sought; the routes re-tested and opened; the table placed in the structure paper and the memorandum. Month four: first close, with the register having read the table. Year three: a new facility; the test re-run on its clauses; the carve-out negotiated. Year five: a state's ownership law amended; the test re-run; the buyer class rewritten. Year seven: the exit; the portfolio sells whole on the route the table ranked first, through the consents the table named, at the charges it priced, in the time it gave.

The structure paper's page

The structure paper's exit page is the table, with the routes ranked, the verdicts, the steps' prices and the total, the re-run calendar and the changes that trigger it. The page is the memorandum's exit policy in its working form, the register's answer to how it leaves, the lenders' agreed consents, the committee's procedure for each exit, and the buyer's or the listing authority's first reading done in advance. It is one page and it is the structure's most read.

The land platform's test

On a land platform the test runs parcel by parcel and for the portfolio whole: each parcel company's lender and its change-of-control clause; each state's registry, category and charge, the Kingdom's ten per cent among them; each grantor's consent where there is a usufruct and each master developer's where there is a masterplan; the contribution class's position where a landowner holds units; the developer's promote crystallising on each parcel's realisation; the public tier's conditions where an admission is contemplated; and each holder's capacity for a distribution in kind. The platform room on the Land door runs the four exits the platform's policy contemplates, and the test is that room's method applied before the platform exists.

The test and the valuation

A valuation assumes an exit, and the valuer's instruction names which: a sale to a willing buyer in the market, or a sale through the consents the table names to the buyers the state permits. A valuation that assumes a market exit on a position whose table shows one route to one buyer overstates every holder's position by the route's discount, and the manager's share accrues on the overstatement. The valuer's instruction is drafted from the table, so that the number the register reads is the number the exit would deliver, and the table is the valuer's first document.

The test and the counterparties' knowledge

Every counterparty whose consent the table names knows it holds a consent, and knows the fund's term, because the fund's documents are in the data room or the centre's register. The test does not change what the counterparty knows; it changes when the fund knows it, and what the fund does about it. A consent named on the table at formation is a consent the fund negotiates when it has the leverage of its capital; one discovered at exit is a consent the counterparty prices when it has the leverage of the fund's date. The difference is the whole of the test's value, and it is the difference between asking and needing.

The routes that need each other

Some routes depend on others being open. A continuation needs a placement of the successor's units in each holder's state, which is the marketing regime's route. A distribution in kind needs a successor vehicle for the holders who cannot receive, which is a continuation. An admission needs a successor under the public tier, which is a continuation and a placement. A portfolio-whole sale needs each parcel company's route open in case the acquirer takes them separately. The table reads the dependencies, and a route whose dependency is closed is closed.

The test in the firm's method

The test is the stress-test stage of the house's method applied to the exit: where is the structure fragile, and what depends on what. It is run before the documents are drawn, because a structure paper that does not carry the table has not been finished, and a manager that signs a constitution without it has signed an exit policy nobody executed on paper.

A test, as a type

A manager designs a land platform with parcels in two states and runs the test on the draft structure. The sale of each parcel: open, with the grantor's consent for the Qatari usufruct named as a step with no clock, and the Kingdom's charge priced. The sale of each parcel company: open, with the lenders' change-of-control clauses carved out for transfers to buyers meeting the tier's test, negotiated at the facilities' signing. The portfolio whole: open at a price, because the Qatari grantor's consent covers a single assignee and the charges in both states are priced. Admission: closed as designed, because the chain carries cross-guarantees the first lender wanted; the structure is redrawn without them and the route opens. Distribution in kind: open on a condition, each holder's capacity recorded at admission, with alternatives for those who cannot receive. Continuation: open, with the committee's process in the constitution. The table is one page; two cells were filled by redrawing, one by a step with a date, and the register read it at subscription.

Four cases, as types

A fund's policy contemplates a portfolio-whole sale and its chain was built with cross-guarantees for the lenders' convenience. In year seven the acquirer's counsel reads the guarantees and prices a portfolio it cannot separate; the sale is at a discount the test would have shown in a fortnight at formation.

A fund's policy contemplates a distribution in kind and nobody recorded the holders' capacity. In year nine four holders cannot receive and the registry refuses two transfers; the route is closed at the moment it is needed, and the last asset sells to the buyer who waited.

A fund runs the test at formation, removes the cross-guarantees, obtains the grantor's advance consent to a class of transferees, carves out the lenders' clauses and records the holders' capacity. In year seven the portfolio sells whole to an acquirer whose counsel reads a table rather than a chain, and the consents are where the table said.

A fund runs the test at formation and never re-runs it. A new facility in year three carries a change-of-control clause without the carve-out, and a state's ownership law changes in year five. The continuation in year seven finds a consent the table did not show and a buyer class the table no longer describes.

What each party holds

The manager holds the test, run before formation and re-run on every change, and the decision to redraw or to remove a route.

Counsel in each state holds the steps in that state: the registry's practice, the category, the charge, the time.

The tax adviser holds the charges and the positions on each route.

The lenders hold the consents the table names, priced at signing.

The grantor, the regulator and the co-investors hold their consents, named as steps.

The committee holds the procedure each exit runs on.

The register holds the table, which is the answer to how it leaves.

The sequence

1. The policy's exit routes are listed before the structure is drawn.
2. Each route is walked through the draft structure step by step, with the party, the consent, the document, the charge and the time at each, by the designer with counsel in each state and the tax adviser.
3. Closed routes are removed from the policy or the structure is redrawn to open them.
4. Routes open at a price have the price written; routes open on a condition have the condition as a step with an owner and a date.
5. The table is placed in the structure paper and the memorandum, and the register reads it.
6. The test is re-run on every change that reaches it, and at least annually.

Questions a manager asks

Can the test be run after formation. It can, and it finds the same things at a price: consents from parties who now hold them and a structure that cannot be redrawn without their agreement.

What does a closed route mean. That the structure as designed cannot execute it: a registry that will not record, a holder that cannot receive, a chain the listing authority will not read. The policy drops it or the structure changes.

How many routes should the policy carry. At least two that are open, because a fund with one route is a fund priced by that route's counterparty.

Who runs the test. The structure's designer, with counsel in each state for the steps there and the tax adviser for the charges; the lenders and the committee read the result.

Does the register really read it. Institutional registers ask how they leave before they subscribe, and a table answers; a chart does not.

How often is it re-run. On every change that reaches it, and annually, because states, lenders and counterparties change.

Terms used

Exit test: the walk-through of each exit route against the structure as designed, recording party, consent, document, charge and time at each step.

Route: one of the six ways a fund may leave a position or a portfolio.

Cell: a step on a route, with its party, consent, document, charge and time, or an empty one.

Closed route: a route the structure as designed cannot execute.

Open at a price: a route whose consents have a stated cost.

Open on a condition: a route that needs a step taken first, with an owner and a date.

What to read

The policy's exit routes; each state's registry practice, ownership category and charges; each facility's disposal, change-of-control and release provisions; each grant's and licence's consent provisions; each shareholders' agreement's pre-emption and drag; the constitution's related-party and distribution provisions; the public tier's conditions. On this site, the exit design room under Structures, the platform room on the Land door and the holding chains room.