Revolver

Full Definition

A Revolving Credit Facility (revolver) is a committed line of credit from a bank or syndicate of banks that allows the borrower to draw down funds, repay them, and redraw as needed, up to the committed maximum amount and through the maturity date. Unlike a term loan (which is drawn once and repaid on a schedule), a revolver functions like a corporate credit card—flexible, reusable, and sized for day-to-day liquidity management. Revolvers are typically used to fund working capital seasonality, bridge acquisition financings, and provide liquidity insurance against unexpected cash flow shortfalls. In leveraged capital structures, the revolver sits at the top of the capital structure as senior secured debt with first lien priority, alongside or senior to the term loan. Commitment fees (typically 0.25–0.50% annually on the undrawn amount) are charged whether or not the revolver is drawn, compensating the bank for maintaining committed capital. When drawn, interest accrues at the base rate (SOFR) plus a spread, typically 150–300 bps for investment-grade borrowers and 300–500 bps for leveraged credits. Most revolvers mature in 5 years and must be refinanced or renewed at maturity. Banks include revolvers in leveraged loan packages as a relationship product—the commitment to provide liquidity establishes a banking relationship that generates fee income from treasury management, hedging, and ancillary services. From the borrower's perspective, the revolver serves as liquidity insurance: many PE-backed companies maintain an undrawn revolver as a safety valve and draw it only during predictable working capital peaks or immediately before deploying it for an acquisition. Covenant compliance on revolvers mirrors the term loan (the same maintenance covenants typically apply), meaning seasonal revolver draws during tight covenant periods require careful treasury management planning.

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