Revolving Credit Facility: What a Company Pays For Before It Has Borrowed a Rouble

A revolving credit facility is a bank's commitment to lend money within a set limit as many times as the borrower wishes, on the condition that the repaid portion becomes available again. The main difference from an ordinary loan lies neither in the rate nor in the maturity, but in the fact that the subject of the deal is the bank's very readiness to lend. The company buys a right to liquidity and pays for that right separately from interest — even in periods when it has drawn nothing from the facility.

How a "revolver" works mechanically

The agreement fixes the limit, the availability period and the drawdown procedure. The borrower submits a request (a drawdown notice) an agreed number of business days in advance, receives a tranche, uses it, repays it — and the limit is restored. Hence the name: the credit revolves like the cylinder of a revolver. Tranches within the facility are usually short and are rolled over again and again, while the overall term of the facility itself is measured in years.

This structure solves a problem that a term loan cannot handle. An operating business does not have a flat need for cash: that need breathes together with working capital — the purchase of raw materials, the seasonal sales peak, the gap between shipment and receipt of payment. Taking out a term loan for every such gap is expensive and slow, while keeping a permanent stock of cash in the accounts means freezing capital. A revolver covers the gap on demand and then closes it again by itself.

What the price is made up of

The payment on a revolving facility breaks down into components, and for a corporate treasurer this matters more than the nominal rate.

Interest on the drawn amount. It accrues only on the amount actually used, as a rule under the formula "base rate plus margin". In Russia the base is most often the Bank of Russia key rate or RUONIA; abroad it is SOFR and its equivalents.

Commitment fee. It accrues on the undrawn balance of the limit. This is precisely the payment for readiness: the bank sets aside capital against the facility under regulatory requirements and demands remuneration for that reserve. It is this fee that turns the facility from an option into an expense that shows up in the financial statements even with zero drawdown.

A one-off arrangement fee — for structuring the deal and, in the case of a syndicate, for bringing the lenders together.

Utilisation fee — a surcharge that kicks in when drawdown exceeds an agreed threshold. It disciplines the borrower: keeping the facility almost fully drawn becomes more expensive.

Committed and uncommitted: the distinction that decides everything

A facility can be firm or soft, and the two must not be confused.

Under a committed facility the bank is obliged to provide the money as long as conditions described in advance are met. It can refuse only on grounds set out in the agreement. Such a facility works as a liquidity cushion: rating agencies take it into account, and it is cited in the going-concern section of the financial statements.

An uncommitted facility is merely an agreed framework within which every drawdown requires a separate decision by the bank. It is cheaper, and there may be no commitment fee on it at all, but in a crisis it evaporates exactly when it is needed. An overdraft on a current account in most cases belongs here as well.

Covenants and conditions for drawdown

The firmness of a committed facility is limited by the conditions precedent. The standard set: compliance with financial covenants on the drawdown date, the absence of an event of default, confirmation of the representations and the absence of a material adverse change — the MAC clause. The latter is worded broadly and in a crisis becomes a matter of dispute: the borrower considers the facility available, while the bank points to a deterioration in circumstances.

Financial covenants on revolvers are usually tied to leverage and interest coverage, are tested on reporting dates and are calculated under the methodology agreed in the contract rather than under the accounting standard. The difference between "covenant" debt and reported debt is a separate source of surprises for the analyst.

Why an investor needs to know this

A revolver is an element of the debt structure, and it changes the way the debt profile is read. The drawn portion of the facility sits in short-term debt, although economically it represents long-term financing for as long as the facility is available. The undrawn portion is not visible on the balance sheet, yet it determines the company's ability to get through a cash shortfall without a fire sale of assets and without tapping the market at a bad moment.

Hence the practical sequence for working with an issuer: step 1 — find in the notes the total amount of limits and the drawn portion; step 2 — separate the committed facilities from the uncommitted; step 3 — compare the expiry of the facilities with the bond redemption schedule. When a facility expires before a large redemption, the company goes into refinancing without insurance. The comparison is convenient to make with the list of the issuer's bonds and the OFZ curve side by side as a benchmark for the cost of risk-free funding.

For a shareholder the facility matters elsewhere: it competes with payouts. A company that keeps an expensive undrawn facility instead of a cash reserve saves on the cost of capital but becomes vulnerable to the stance of its banks, while a company with a drawn revolver is often bound by a covenant that restricts the distribution of profit. How this has affected payout decisions is worth checking against the dividend history.

The platform does not collect the terms of specific credit facilities — limits, margin, the size of the commitment fee: issuers disclose these parameters selectively and under differing methodologies, and bringing them together into one indicator would amount to forcing the data to fit. Definitions of related concepts are gathered in the glossary.