The commitment fee, the utilisation fee and the day count worked on one quarter of a revolver, with the readings of the clause that get the invoice wrong.
A commitment fee is the undrawn amount of the facility times the fee rate times the days over 360, computed on the daily balance and paid quarterly in arrears. On an illustrative 75,000,000 euro revolver with a commitment fee of 35 per cent of a 325 basis point margin, the rate is 1.1375 per cent, and a 91-day quarter with drawings rising from 10,000,000 to 55,000,000 costs 114,382 of commitment fee, plus 12,806 of utilisation fee. Billing it on the quarter-end balance instead would halve it.
Worked in full in How to Read a Credit Agreement by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A sponsor-backed borrower with a revolving credit facility beside its term loan. The pricing is typical of the way European leveraged agreements are drafted; every figure is illustrative.
| Term | Value |
|---|---|
| Total commitments | 75,000,000 |
| Margin on drawn loans | 3.25% |
| Reference rate (Euribor, illustrative) | 2.00% |
| Commitment fee, % of the applicable margin | 35% |
| Utilisation fee, usage above 33.3% | 0.10% |
| Utilisation fee, usage above 66.7% | 0.20% |
| Day count | actual/360 |
Read the definition first. "Thirty-five per cent of the applicable Margin" is not 35 basis points. It is a percentage of a percentage:
Commitment fee rate = 35% × 3.25% = 1.1375% a year, or 113.75 bp
Because it is tied to the applicable margin, the fee moves with the margin ratchet. If leverage falls and the margin steps down, the commitment fee steps down with it, from the same certificate date.
The fee accrues on the available commitment each day. In practice a balance is constant between drawings and repayments, so the quarter splits into periods.
Fee = Σ (commitment − drawn) × 1.1375% × days / 360
First period: 65,000,000 × 1.1375% × 30 / 360 = 61,614.58
Excel, undrawn in C2:C4 and days in A2:A4: =SUMPRODUCT(C2:C4,A2:A4)*1.1375%/360
| Days | Drawn | Undrawn | Usage | Commitment fee | Utilisation fee | Interest |
|---|---|---|---|---|---|---|
| 30 | 10,000,000 | 65,000,000 | 13.3% | 61,615 | 0 | 43,750 |
| 30 | 40,000,000 | 35,000,000 | 53.3% | 33,177 | 3,333 | 175,000 |
| 31 | 55,000,000 | 20,000,000 | 73.3% | 19,590 | 9,472 | 248,646 |
| 91 | 35,219,780 | 39,780,220 | 114,382 | 12,806 | 467,396 |
The total row shows the time-weighted averages: 39,780,220 undrawn and 35,219,780 drawn. The average undrawn balance times the rate times 91/360 gives the same 114,382, which is a useful check on the agent's invoice.
The utilisation fee is charged on drawn loans, at the rate for the band that usage falls in. Usage of 13.3 per cent pays nothing, 53.3 per cent pays 0.10%, and 73.3 per cent pays 0.20%. Most drafting applies the band rate to all drawn loans, not only the slice above the threshold, so the fee has cliffs: at 50,000,000 drawn, exactly two thirds, it runs at 50,694 a year; at 50,100,000 it jumps to 101,592.
The quarter costs 114,382 of commitment fee, 12,806 of utilisation fee and 467,396 of interest at 5.25%, a total of 594,583. Measured on the average drawn balance, the all-in cost is 6.68% a year, 143 basis points above the drawn rate. That is the price of having the undrawn 39,780,220 available.
A delayed draw term loan charges the same kind of fee on its undrawn amount under another name, with its own step-ups over time: see how a ticking fee is calculated on a DDTL.
| Drawn | Usage | Commitment fee | Utilisation fee | Interest | Total | Cost per drawn, bp |
|---|---|---|---|---|---|---|
| 0 | 0% | 864,974 | 0 | 0 | 864,974 | n/a |
| 15,000,000 | 20% | 691,979 | 0 | 798,438 | 1,490,417 | 994 |
| 30,000,000 | 40% | 518,984 | 30,417 | 1,596,875 | 2,146,276 | 715 |
| 45,000,000 | 60% | 345,990 | 45,625 | 2,395,312 | 2,786,927 | 619 |
| 60,000,000 | 80% | 172,995 | 121,667 | 3,193,750 | 3,488,411 | 581 |
| 75,000,000 | 100% | 0 | 152,083 | 3,992,188 | 4,144,271 | 553 |
An unused revolver costs 864,974 a year: 853,125 on a 360-day year, plus five days because the day count divides actual days by 360. A borrower that draws 15,000,000 for working capital pays 994 basis points on what it uses. The facility is cheap insurance only if it is the right size; a revolver sized for a peak that never comes is a fee line.
The revolver's cost is also why borrowers repay it at quarter end. A springing covenant that tests leverage only when usage passes a trigger rewards exactly that, as worked in how a springing covenant works.
The facility, its margin grid and its covenant tests, quarter by quarter, are in the free workbook for this case.
In European leveraged facilities it is commonly expressed as a percentage of the applicable margin, often around 35 per cent, rather than as a fixed number of basis points. On a 325 basis point margin that is 1.1375 per cent a year on the undrawn amount: 853,125 a year on a 75,000,000 facility left entirely undrawn, before the actual/360 day count lifts it to 864,974 over 365 days.
No. It is charged on the available, undrawn commitment, day by day. Charging 1.1375 per cent on the full 75,000,000 for the quarter here would bill 215,651 instead of 114,382. Drawn amounts pay interest at margin plus the reference rate instead, and possibly a utilisation fee.
It is an extra fee on drawn amounts once usage passes set bands, here 0.10 per cent above one third and 0.20 per cent above two thirds. As drafted in most agreements, the band rate applies to all drawn loans, so crossing two thirds doubles the fee on the whole balance: from 50,694 a year at 50,000,000 drawn to 101,592 at 50,100,000.
This article is one calculation from How to Read a Credit Agreement. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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