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. This, again, is usually a feature of investment-grade loans. Under the option, borrowers may take what is significant hyperlink outstanding under the facility and pay it off according to a predetermined repayment schedule. Often the spreads ratchet up if the term-out option is exercised. ? An evergreen is an option for the borrower- with consent of the syndicate group-to extend the facility each year for an additional year.
There are a number of options that can be offered within a revolving credit line: ? A swingline is a small, overnight borrowing line, typically provided by the agent
? A term loan is simply an installment loan, such as a loan one would use to buy a car. The borrower may draw on the loan during a short commitment period and repays it based on either a scheduled series of repayments or a one-time lump-sum payment at maturity (bullet payment). There are two principal types of term loans: ? An amortizing term loan (A-term loans, or TLa) is a term loan with a progressive repayment schedule that typically runs six years or less. Starting in 2000, A-term loans became increasingly rare, as issuers bypassed the less-accommodating bank market and tapped institutional investors for all or most of their funded loans. ? An institutional term loan (B-term, C-term, or D-term loans) is a term loan facility carved out for nonbank institutional investors. These loans came into broad usage during the mid-1990s as the institutional loan investor base grew. Until 2001, these loans were, in almost all cases, priced higher than amortizing term loans, because they had longer maturities and back-endloaded repayment schedules. The tide turned, however, in late 2001, and through 2006 the spread on a growing percentage of these facilities into parity with (in some cases even lower than) revolvers and Aterm loans. This is especially true when institutional demand runs high. This institutional category also includes second-lien loans and covenant-lite loans, which are described below.
? LOCs differ, but, simply put, they are guarantees provided by the bank group to pay off debt or obligations if the borrower cannot.
These loans are normally syndicated to banks along with revolving credits as part of a larger syndication
? Acquisition/equipment lines (delayed-draw term loans) are credits that may be drawn down for a given period to purchase specified assets or equipment or to make acquisitions. The issuer pays a fee during the commitment period (a ticking fee). The lines are then repaid over a specified period (the term-out period). Repaid amounts may not be reborrowed.
