A revolving credit facility (revolver) is a committed line of credit that permits a borrower to draw funds, repay them, and reborrow up to the committed limit over the life of the facility. Unlike a term loan, which is drawn once and amortizes over time, a revolver is a flexible instrument designed to support working capital fluctuations, letters of credit, and short-term liquidity needs.
The commitment amount defines the maximum outstanding at any time. The borrower pays a commitment fee on the undrawn portion — typically 25–50% of the all-in spread — to compensate the lender for holding the commitment even when unused. When draws are made, the borrower pays the full interest spread on the outstanding balance. Many revolvers include a utilization fee that increases the cost when the revolver is drawn above a specified percentage of the commitment.
Revolvers can be used for general corporate purposes, working capital, acquisitions, or as backstop liquidity for commercial paper programs. Investment-grade companies often maintain revolvers primarily for liquidity insurance — drawing infrequently in normal markets but relying on the facility during periods of market dislocation. Leveraged borrowers frequently use revolvers for day-to-day working capital, with drawn balances fluctuating based on the operating cycle.
Most revolvers include a swing line — a subfacility allowing same-day borrowing in small amounts, typically from the agent bank, without requiring syndicate notification. Letter of credit (L/C) subfacilities are also common, allowing borrowers to issue documentary or standby letters of credit that reduce available revolving commitment without creating cash borrowings.
Revolving credit facilities typically mature in three to five years and are priced on a floating-rate basis. Leverage pricing grids — where the margin adjusts based on the borrower's leverage ratio — are common in investment-grade revolvers and allow pricing to move up or down automatically as the borrower's financial profile changes.