Revolving credit facility (private credit fund context)

In a private credit fund context, a revolving credit facility (RCF) is a loan commitment in which the fund provides a borrower with access to capital up to a defined limit, from which the borrower can draw, repay, and redraw repeatedly throughout the facility's availability period. Unlike a term loan (which is advanced once and amortises on a fixed schedule), an RCF is a flexible instrument designed to meet recurring working capital or liquidity needs.

For private credit fund administrators, RCFs create distinct operational demands compared to term loans: the drawn balance changes frequently, commitment fees apply to undrawn amounts, and cash flows are unpredictable, requiring active liquidity management at the fund level.

How it works

An RCF establishes a maximum commitment amount (the "facility limit" or "revolving commitment"). The borrower can draw up to this limit, repay any portion at any time during the availability period, and redraw again, as long as total utilisation does not exceed the limit. Draws typically require a minimum notice period (commonly two to five business days for larger facilities) and are subject to conditions precedent, including confirmation that no event of default has occurred.

Interest accrues only on the outstanding drawn balance, calculated at a spread over a reference rate (such as SONIA or EURIBOR) or at a fixed rate. On the undrawn portion, the borrower pays a commitment fee (also called a non-utilisation fee), which is typically lower than the interest rate on drawn amounts and compensates the fund for reserving the capital.

Repayments reduce the drawn balance but do not reduce the commitment limit. A borrower who repays EUR 5 million on a EUR 20 million RCF with EUR 15 million outstanding restores EUR 5 million of available headroom, which can be redrawn at any time.

For private credit fund administrators, RCFs are more operationally complex than term loans for several reasons:

First, the cash flows are irregular and hard to forecast. A term loan has a defined amortisation schedule; an RCF may see multiple draws and repayments in a single month, each requiring recording, reconciliation, and reporting.

Second, the interest calculation changes daily with the outstanding balance, requiring the fund accounting system to accrue interest on a variable balance. Some systems handle this automatically; others require manual entries or periodic recalculation.

Third, RCFs may have multiple sub-facilities or multicurrency components, where the borrower can draw in different currencies up to a combined limit. This adds FX tracking and translation requirements.

Fourth, the interaction between an RCF held by the fund and the fund's own subscription credit facility can be complex. When a borrower draws on an RCF, the fund needs cash to fund the advance. If the fund uses its subscription line to bridge before calling LP capital, the fund administrator must track both the underlying investment (the RCF draw) and the funding source (the subscription line draw).

RCFs in private credit are distinct from subscription credit lines (which are loans to the fund itself, secured against LP commitments) and from revolving credit facilities used by operating companies for general corporate purposes (which may have different structural features). The term "revolving facility" in a private credit portfolio refers specifically to a loan the fund has made to a portfolio company.

Worked example

Wentworth Private Credit Fund IV holds a GBP 25 million revolving credit facility provided to Colton Retail Group, a mid-market consumer goods distributor. The facility carries an interest rate of SONIA + 4.5%, with a commitment fee of 1.8% per annum on undrawn amounts.

In January, Colton draws GBP 18 million to fund seasonal inventory purchases. The fund records an outstanding loan balance of GBP 18 million, accruing interest at SONIA + 4.5% on the drawn amount and commitment fees at 1.8% on the remaining GBP 7 million undrawn headroom.

In March, Colton repays GBP 10 million from inventory sale proceeds. The outstanding balance falls to GBP 8 million, and the undrawn headroom increases to GBP 17 million. Commitment fees now accrue on GBP 17 million.

In April, Colton draws a further GBP 5 million for a supplier payment. The outstanding balance rises to GBP 13 million.

The fund administrator must record each draw and repayment on the date it occurs, recalculate interest accruals daily on the variable balance, and update the fund's cash position and LP capital accounts accordingly. For quarterly LP reporting, the statement shows the RCF at its carrying value (GBP 13 million at the reporting date) plus accrued income.

Frequently asked questions

What is the difference between a revolving credit facility in a private credit fund and a subscription credit line? A revolving credit facility held by the private credit fund is an investment: the fund has lent money to a portfolio company under a revolving structure, and the fund earns interest and commitment fees as the lender. A subscription credit line is a liability: the fund has borrowed money from a bank, secured against the LP commitments, to bridge capital calls. The two facilities often coexist in the same fund but serve opposite purposes (lending to portfolio companies versus borrowing to manage fund-level liquidity).

How does a private credit RCF differ from a bank overdraft or corporate revolving facility? The economic function is similar: a flexible, reusable credit line for working capital purposes. The key differences are the lender (a private credit fund rather than a bank), the pricing (typically higher margins and fees than a bank-provided facility), the documentation (private credit agreements are typically more bespoke than standardised bank facilities), and the reporting requirements (the borrower provides more frequent and detailed financial reporting to a private credit fund than to a bank).

How should a fund administrator account for partial repayments on an RCF? Each repayment reduces the carrying value of the outstanding loan balance. It does not reduce the total commitment. The fund accounting system should record the repayment as a cash inflow, reduce the RCF balance accordingly, and recalculate the undrawn commitment available. Commitment fees are adjusted based on the new undrawn amount from the repayment date. Interest income recognised to the repayment date is settled with the cash inflow.

Does an RCF affect a private credit fund's capital call timing? Yes. When a borrower draws on an RCF, the fund must have cash available to fund the advance. If the fund holds sufficient cash (from prior capital calls or subscription line availability), no new capital call is needed. If the fund's cash is insufficient, a capital call is required, which may be triggered by the RCF draw. Fund administrators managing funds with large RCF commitments should model expected draw patterns to anticipate capital call timing.

Can an RCF be included in a private credit fund's net asset value? Yes. The drawn balance of an RCF is a financial asset of the fund and is included in the NAV at its carrying value (typically cost plus accrued income, subject to any credit adjustments for deteriorating borrower quality). The undrawn commitment is an off-balance-sheet obligation of the fund (to lend, if the borrower draws) and is not included in the NAV, but should be disclosed as a contingent commitment in LP reports.

Related terms

Delayed draw term loan, Subscription line / capital call facility, PIK interest / PIK accrual, Unitranche, Amortisation schedule in private credit fund administration, Capital call

Related pages

Private credit fund administration: operational guide, Swelv for private credit fund administrators