credit revolver
What are credit revolvers usually secured with? How do banks determine how much revolver to give you? Is it a function of EBITDA or AR + INV?
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As far as I know revolver borrowing capacity is generally based on 85% of eligible AR.
Most of the ones I have seen are secured by all assets of the company.
what about term loans? function of EBITDA?
No idea about term loans, I would guess they are a multiple of the revolver. I've seen companies with 300M revolvers and 1,000M term loans so that's what I would guess.
term loans are not a multiple of revolvers.
depends on the quality of the company, but there can be unsecured loans/revolvers. For a syndication, the bank has to take into consideration many different factors (both qualitative and quant). Also, the bank's relationship (and ability to cross-sell) with the client has a HUGE influence on the amount that the bank is willing to commit
Many of our portfolio companies have ABL revolvers secured by inventory. There are generally minimum availability requirements and EBITDA thresholds.
Like Yacht man said, I'm pretty sure that revolvers will be secured with company assets and with around 85% of eligible A/R & inventory. Term loans will be similar to the revolvers and both will be 1st lien on the company's assets.
The other side of that will be the interest rates banks charge on those and lenders will have covenants about things like EBITDA or the leverage ratio.
@bigmonkey; unsecured revolvers & term loans? Do you have an example?
if inventory + AR is so important, how come my superiors tell me to look at how much PPE the company has when looking to see how much the EBITDA multiple for our debt is in an LBO model.
how hard is it get a relover, can any company just get a revolver?
i tried to get a revolver once. the dude at the gun shop said you had to be at least 18 though.
I want to say it's fairly easy. I've seen some shockingly bad companies with revolvers. I've even seen a company that was in default of their existing revolver, refinance and pay of the old revolver with a new revolver.
I didn't say EBITDA wasn't important, just that the amount that will be drawn on the revolver depends on the A/R & inventory. However, revolvers & term loans will have covenants that relate to how much EBITDA the company must maintain relative to the loan.
Most people here are clueless. Assuming a company is not in distress, revolver's will typically be sized to be able to fund the most extreme working capital swings a company could have. They are designed to fund continuing operations in the short term. Revolver's typically have a 1st Lien on all assets of the company. The 85% of A/R, 65% of Inventory, etc. that people are referring to only refers to ABL's. An ABL is cheaper but has a borrowing base calculated off advance rates like the one above. A regular revover's size does not change whereas an ABL's borrowing base changes on a quarterly basis. Also note that unlike someone said, revolvers do not function at all on the ability to syndicate. As revolvers are only drawn on a temporary basis, CLO's and hedge funds never bought revovler paper. They are pretty much only held on a institutional basis. Now term loans as described below do depend on this, but entirely different market.
Term loans are sized depending on the deal. In an all bank debt LBO structure of two years ago, all the TL paper was sold to CLO's allowing for cheaper borrowing than the bond market. Companies were levered upward of 4.0x through TL's at the height of the boom. In these cases you might have a TLB and TLC, the TLB secured and pari passu with the revolver and the TLC with a 2nd Lien. Nowadays, no one is doing TL's because there are no buyers of the paper.
that's the answer you want. nowadays even the abls are priced much higher than before. another note is that most revolvers are asset based and lots term loans are cash flow based. only small TLs are getting done in club deals where all the banks come together taking small pieces instead of one bank underwrite the whole deal then syndicate whatever the bank doesnt want to hold on to.
is it still diicult to get term loans of 2x ebitda nowadays? and whats the interet rate like 8% ish?
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