Commitment fee

A commitment fee (commission de non-utilisation) is the fee a company pays to the lender that has granted it a committed credit facility, calculated on the undrawn part of the facility. It compensates the lender for its commitment to keep the funds available to you during the availability period. It is expressed as a percentage of the margin applied to drawn amounts. Market practice sets it at 30% to 35% of that margin. It mainly concerns the revolving credit facility (RCF), the acquisition facility and the capex facility, since the term loan is drawn in full at closing. The LMA model provides for payment from the start of the availability period. Borrowers frequently obtain that the fee accrues only from closing, or from one to two months after signing the agreement. Some agreements provide for a ticking fee, set at a lower level, which compensates the commitment to fund between signing and closing. For you, the question is to size the committed facilities to the real need of the business plan, because an oversized and little-used facility costs its fee every year with nothing in return.

A company has a €30m RCF at a margin of 3.00%. The commitment fee is set at 35% of the margin, or 1.05% a year. Over the year, the facility is drawn by €10m on average: the fee applies to €20m and amounts to €210,000.

• The fee rate, expressed as a percentage of the margin.
• The start date: signing, start of the availability period or closing.
• The size of the committed facilities in relation to the real need.
• Whether a ticking fee applies between signing and closing.