A company I am building a model for has a .5% annual commitment fee on the unused portion of a $700mm revolving credit facility. The maximum letter of credit capacity is $50mm. Assuming the company has an outstanding balance of 0 on the revolver, would the quarterly commitment fee be = to (.005*(700-50))/4 due to the $50mm LOC capacity, or would it just be (.005*(700))/4? Thanks.
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I would do it using the full 700. Yes LCs decrease your capacity technically but the company should be paying for the entire undrawn portion even though their capacity may not be the entire 700
full amount - lenders set aside 700mm, so they’ll expect to get paid. LC facilities are separate
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