Is the Revolver included in "Sources"?
I know the revolver is used for WC/Capex needs, but I was wondering if you use the revolver to purchase the company, then in Day 1, the revolver is fully drawn right? Do you include the revolver under "Sources"? - cause if you do that effectively means you've used it to buy the company alongside term loans,etc, which in my mind doesn't make any sense. Isn't the R supposed to be SEPARATE from "Sources & Uses"?
Revolvers are usually undrawn. They would be shown like this:
Source USE
Rev -- 5MM Excess Availability - 5MM
Revolver funded at close -- 0
To elaborate on ANT's point, only the portion of the revolver that's drawn at close is included in sources.
right, but you would not use the revolver to "pay" for the acquisition of the company. you use term loans, bonds and equity to do that. So right after the acquisition the whole amount of the revolver would be undrawn. After you acquire the company you can spend the revolver on whatever you want but my question was whether you use the revolver to pay for the acquisition (i.e. draw the whole/partial revolver and pay "USES" with it) . If you dont use it to acquire the company then It makes no sense to include it as part of "Sources".
Depending on the transaction, the S&U also includes what I'd call "liquidity"-things like the revolver, cash, debt service or capex reserve, etc.
Note that the revolver isn't used simply for WC/CapEx. You can pull on the revolver to fund add-on acquisitions or really do anything permitted by the lender.
If you can use the revolver for all kind of stuff, one thing I dont understand is why PE is so keen on WC optimization? Yeah, my cashflow is shit (I'll get it next year), but I can still use the revolver amortize the debt. The only cost would be the interest associated with the drawn amount. I'm assuming you can use the Revolver for debt amortization.
Yeah, lot of times the revolver will be used for ECF sweeps, working capital, etc.
Then you have to get into whether it is a CF revolver, ABL, setting a borrowing base, etc.
Aren't ABL's structured based on a borrowing base, so in this sense, ABL and borrowing base relate to the same thing?
Yeah, if it is an ABL revolver you need to negotiate availability, etc.
You tend to see the revolver used to "purchase" companies that are in distress or situations where there is assets that you can lever up on an ABL basis.
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