Structuring Revolving Credit Facilities: Draw Provisions, Swingline Financing, Lender Liability Concerns

A revolving loan facility allows borrowers to draw down, repay, and draw funds again throughout a set loan term. Proceeds are generally used for working capital needs and other corporate purposes. Revolving facilities are essentially an ongoing loan commitment, often involving multiple lenders, with each lender agreeing to provide its pro-rata share of the funds requested.

Central to a revolving credit agreement are draw provisions that govern how a borrower may request funds under the facility. At a minimum, they should include required documentation in a draw request, require confirmation that no default exists at the time of the borrowing, and require a borrower certification that certain representations and warranties in the credit agreement remain true and correct.

Failure to fund upon a valid request could result in claims of breach not only from the borrower but from the other lenders. Lenders must understand in advance any potential grounds for a refusal to fund (including financial deterioration of the borrower) and the possible consequences of such a decision, significantly where the funds disbursed might exceed the value of the secured lenders' collateral.

Swingline loans are often made available as a component of a revolving credit facility to give the borrower more rapid access to funds (at higher pricing). The swingline lender is obligated to make swingline loans within its revolving credit commitment limit. The revolving facility documents should include swingline loan terms and conditions and how those fundings fit into the facility as a whole.

Listen as our authoritative panel discusses the nuances of revolving credit facilities.