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COMMON TYPES OF FACILITY OVERDRAFT
REVOLVING CREDIT FACILITY (RCF)A tool to aid cash flow by providing a reserve of easily accessible money to meet any shortfall in working capital (aka "working capital facility" (WCF))
PurposeProvides company with lump sum for a specific purpose e.g. ?
setting up business renewing assets ("capital expenditure") or acquisitions.
Should be used temporarily. Once cash flow has recovered, should be used to reduce borrowing from overdraft.???
Basic Features?Current liability on balance sheet for borrower No substantial documentation Provided on banks 'standard terms'. Little negotiation. Subject to max. aggregate, usually a few
PS100k. Subject to clean-down provision (see below) Expensive
- interest calculated on amount outstanding each day at fixed % above bank's base rate. Bank charge high fee for providing due to higher volume of admin compare to other facilities.???
Typically borrower allowed a short period ('availability period') after execution during which it can utilise a lump sum up to a specified amount. Availability period can be extended so money can be drawn in a number of portions ('tranches') when required
- minimises interest payments. Multicurrency term loans allows borrower to draw different pre-agreed currencies. Drawn amounts can be 'redenominated at end of an interest period. Repaid in accordance with an agreed timetable - amortisation, balloon , bullet (see below) Interest usually floats as fixed % above base rate (LIBOR). Can be fixed rate????Committe d or uncommi tted
Allows borrower to draw upon and repay tranches of the available capital as and when borrower requires. Provides max. aggregate amount over specified period. Combines flexibility of overdraft with certainty of term loan - borrower can draw whole loan at once and elect to repay parts it no longer requires. Interest payment kept to a min. WCF intending to meet borrower's short term, fluctuating capital needs. Each tranche is usually borrowed for a relatively short period (1,3 or 6 months) after which it is technically repayable Can be repaid and immediately re-drawn
"rollover" Min notice period before each utilisation Max and min amounts which may be drawn in one tranche. Min period for which amount is borrowed is repaid Max number of tranches drawn at one time. Final repayment usually required in a bullet repayment, but can be restructured with a reducing availability thought its life (like amortisation repayment) Commitment fee charged - calculated as a % of undrawn facility from time to time. Levied to cover capital adequacy costs. Often subject to clean-down provision (see below)
Yes - must be repaid (reduced to zero) whenever bank demands. Generally not done without reason
No (usually) - bank cannot withdraw facility unless the borrower defaults
Can capital be re-
Yes - rollover
BDF - WS 1 - Debt Finance from the Lender's Perspective
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