undrawn revolving credit

By Francesco Lione, Charles Armstrong, Tom EvansDominic Newcomb, David Walker, and Catherine Campbell

Undrawn credit lines are essential to private equity but in short supply from banks.

Undrawn revolving credit facilities (RCFs) are essential to private equity. They are a backup in the event of mismatches in the working capital cycle, provide comfort for a rainy day, and preserve swift access to deal-making when other financing sources are unavailable, or less easily accessible. The COVID-19 pandemic could not have proved the importance of undrawn RCFs more clearly. Within a few weeks of the onset of the pandemic, as credit markets gummed up and businesses worldwide grappled with evaporating liquidity, leveraged companies dashed for cash and drew revolving lines.

PE firms may be able to persuade banks to offer RCF commitments more freely by transcending the limitations of current transactional templates and allowing banks to consistently provide undrawn revolving credit in its most secure form — alongside all leveraged loans and secured bonds, rather than just on bond backed deals, as is current practice.