Revolving credit facility

A revolving credit facility, often called a revolver, is a committed line of credit that a bank or group of banks agrees to keep open for a company for a set period, often several years. The company can draw money when it needs it, repay it, and draw it again as many times as it likes, up to an agreed limit. It pays interest only on the amount drawn, plus a small commitment fee on the part it leaves unused.

The undrawn part of a revolver is one of the most important liquidity buffers a company has. Analysts often add it to cash when judging how long a business could survive a bad stretch, and companies tend to draw heavily on their revolvers at the start of a crisis to make sure they have the cash in hand. On the balance sheet, drawn amounts are classified by when the facility itself matures: if it runs for several more years, drawings usually count as long term debt, and if it expires within twelve months, they count as short term debt.

Revolvers almost always come with covenants, such as a maximum leverage ratio. If a company breaches them, the banks can refuse new drawings just when the money is most needed, so a revolver is only as reliable as the company's distance from its covenant limits. When reading a company's debt notes, check the size of the facility, how much is already drawn, when it expires and how close the company sits to its covenants.