The facility acts much like a corporate credit card, except that borrowers are charged an annual commitment fee on unused amounts, which drives up the overall cost of borrowing (the facility fee). Revolvers to speculative-grade issuers are often tied to borrowing-base lending formulas. This limits borrowings to a certain percentage of collateral, most often receivables and inventory. Revolving credits often run for 364 days. These revolving credits- called, not surprisingly, 364-day facilities- are generally limited to the investment-grade market. The reason for what seems like an odd term is that regulatory capital guidelines mandate that, after one year of extending credit under a revolving facility, banks must then increase their capital reserves to take into account the unused amounts. Therefore, banks can offer issuers 364-day facilities at lower unused fee than a multiyear revolving credit. ? A multicurrency line may allow the borrower to borrow in several currencies. ? A competitive-bid option (CBO) allows borrowers to solicit the best bids from its syndicate group. The agent will conduct what amounts to an auction to raise funds for the borrower, and the best bids are accepted. CBOs, typically, are available only to large, investment-grade borrowers. ? A term-out will allow the borrower to convert borrowings into a term loan at a given conversion date. Continue reading “A revolving credit line allows borrowers to draw down, repay, and reborrow”
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