Revolving Credit Facility (Revolver)

A revolver is a committed line the borrower can draw, repay and redraw up to a limit for the life of the facility, like a corporate overdraft. It funds working capital swings and seasonal cash needs rather than the purchase price of an acquisition, which is what the term loans are for.

It is priced in two parts. Interest accrues on the drawn balance at a floating rate — a reference rate such as SOFR or SONIA plus a margin. A smaller commitment fee accrues on the undrawn portion, because the lender has set the capital aside whether or not it is used. On a $100m facility drawn at $20m, with SOFR at 4%, a 300bp margin and a 50bp commitment fee, the annual cost is roughly $1.4m on the drawn amount plus $400k on the undrawn $80m.

In an LBO model the revolver is the balancing item. It sits at the bottom of the debt schedule as the cash sweep’s counterpart: when the cash flow available for debt service goes negative, the model draws the revolver to keep the minimum cash balance intact; when cash is available, the revolver is repaid first because it is the cheapest and most flexible debt. Building it as a fixed tranche breaks the model the first time a downside case runs.

It is almost always the most senior, most secured piece of the structure and is normally undrawn at close, which is why sources and uses often show it at zero while the commitment is still disclosed. Availability can be limited by a borrowing base tied to receivables and inventory, and by a springing covenant that only tests when drawings exceed a threshold.