The ticking fee on a delayed draw term loan worked month by month, with the step-ups, the draw schedule and the lender's and borrower's reading of the result.
A ticking fee on a delayed draw term loan is the undrawn commitment, multiplied by the ticking rate in force, multiplied by the time it stays undrawn, summed period by period as draws reduce the base. On an illustrative $50.0M DDTL with a three-month grace period, then half and later the full 5.75 per cent margin, a draw schedule of 20.0, 15.0 and 10.0 earns the lender $1.653M over 24 months. That is 3.61 per cent a year on the average undrawn amount, and 3.67 points on each dollar the borrower eventually draws.
Worked in full in The Private Credit Investor by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Delayed draw term loans fund add-on acquisitions in buy-and-build strategies. The lender commits today and holds capacity for months; the ticking fee is what it is paid for holding it. Because the rate steps up and the base steps down, the fee cannot be read off the term sheet. It has to be built.
| Term | Value |
|---|---|
| DDTL commitment | $50.0M |
| Availability period | 24 months |
| Margin once drawn | 5.75% |
| Ticking fee, months 0 to 3 | none |
| Ticking fee, months 3 to 6: 50% of margin | 2.875% |
| Ticking fee, months 6 to 24: 100% of margin | 5.75% |
| Draws: month 4, month 10, month 20 | 20.0, 15.0, 10.0 |
| Cancelled undrawn at month 24 | 5.0 |
Fee for a period = Undrawn amount × ticking rate × months ÷ 12
In Excel, one row per month: =Undrawn*Rate/12, with Undrawn = previous Undrawn − Draw and the rate looked up from the step table.
| Months | Undrawn | Rate | Months | Fee |
|---|---|---|---|---|
| 0 to 3 (grace) | 50.0 | 0.000% | 3 | 0.000 |
| 3 to 4 | 50.0 | 2.875% | 1 | 0.120 |
| 4 to 6, after the first draw | 30.0 | 2.875% | 2 | 0.144 |
| 6 to 10, full margin | 30.0 | 5.750% | 4 | 0.575 |
| 10 to 20 | 15.0 | 5.750% | 10 | 0.719 |
| 20 to 24 | 5.0 | 5.750% | 4 | 0.096 |
| Total | 24 | 1.653 |
Two lines carry most of the fee: the four months at full margin on 30.0, and the ten months on the 15.0 that waits until month 20 for its last draw. The grace period and the half-margin step together contribute only 0.264 of the 1.653.
Average undrawn = 550 undrawn dollar-months ÷ 24 = 22.92
Fee per year = 1.653 ÷ 2 = 0.827, or 3.61% of the average undrawn amount
As a share of the commitment: 1.65% a year, 331 bp over the two years
Per dollar drawn: 1.653 ÷ 45.0 = 3.67 points
The lender reads the first number. Undrawn capacity at full margin earns the 5.75 per cent spread without the SOFR component: 59.0 per cent of a 9.75 per cent drawn coupon, on money the fund can hold in cash or cover with its own subscription line. The borrower reads the third: 3.67 points is what the option on that acquisition capacity cost, comparable with the OID on a new incremental loan raised when the deal is ready.
| Draw pattern | Total fee | Average undrawn | Drawn | Points per $ drawn |
|---|---|---|---|---|
| All drawn at month 3 | 0.000 | 6.25 | 50.0 | 0.00 |
| Base case | 1.653 | 22.92 | 45.0 | 3.67 |
| All drawn at month 12 | 1.797 | 25.00 | 50.0 | 3.59 |
| Half drawn at month 12, rest never | 3.234 | 37.50 | 25.0 | 12.94 |
| Never drawn | 4.672 | 50.00 | 0.0 | n/a |
The grid shows why the step-up exists. Drawn inside the grace period, the facility costs nothing to keep open. Left untouched, it earns the lender 4.672 for nothing funded. A sponsor with an acquisition pipeline that is slipping should run this table before month six, because voluntary cancellation of capacity it no longer needs is usually allowed and stops the fee on the cancelled part at once. Half the facility left unused to the end costs 12.94 points per dollar actually borrowed.
Day count. The table uses months over twelve. Most credit agreements accrue fees on actual days over 360, which adds about 1.39 per cent: 1.676 rather than 1.653 on the base case. Small, but enough to fail a reconciliation against the agent's notice.
The common mistake is to apply the ticking rate to the full commitment for the whole availability period, as if no draw ever happened. Run that way, the same step rates give 4.672, 2.8 times the 1.653 the base case actually pays, and a lender that budgets fee income on that basis will miss it. The opposite error appears in borrower models: treating the ticking fee as a flat 1.00 per cent, as on a revolver commitment fee, which gives only 0.458. A stepped ticking fee is a schedule, and a schedule has to be modelled one row per period against the expected draws.
The book's lender model, with its unitranche, covenants and three cases, is in the free workbook for this case, and a ready-made structure for a direct loan is in the direct lending credit model template. How an upfront point converts into spread is worked in how many basis points one point of OID is worth.
On the undrawn amount. Each draw reduces the base from the day it funds, and any amount still undrawn when the availability period ends is cancelled and stops accruing. Charging the full $50.0M commitment at the same step rates would give $4.672M over 24 months, 2.8 times the $1.653M the base case actually earns.
Both are paid on undrawn money. A commitment fee on a revolver is usually a flat rate for the life of the facility. A DDTL ticking fee typically starts after a grace period and steps up, often to half and then the full margin, to push the borrower to draw or cancel. At a flat 1.00 per cent the same draws would cost $0.458M instead of $1.653M.
Divide the total fee by the amount eventually drawn. In the base case $1.653M on $45.0M drawn is 3.67 points. If only half the facility is drawn at month 12 and the rest lapses, the fee is $3.234M on $25.0M, or 12.94 points, which is why sponsors cancel unneeded DDTL capacity early.
This article is one calculation from The Private Credit Investor. 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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