committed credit facility
Committed credit facilities are a type of credit facility where the borrower and lender negotiate specific terms which, upon satisfaction by the borrower, obligate the lender to loan the money. That is, if the borrower meets certain conditions precedent to the credit facility agreement, then the lender must extend a line of credit to the borrower.
A borrower can typically terminate and/or reduce the credit facility at any time. While enjoying the flexibility to terminate the committed credit facility, the borrower could also be subject to certain conditions when seeking to terminate it, such as paying early termination fees. Therefore, when negotiating a committed credit facility, the aim of a borrower is to ensure that the terms are realistic to comply with, such as to minimize these costs and fees.
On the other hand, a committed credit facility generally does not allow a lender to terminate it except when there is a default on the credit facility by the borrower. Therefore, from the perspective of a lender, the aim when negotiating a committed credit facility is to ensure that the term offers sufficient protection for its investment. Additionally, a lender may also aim to ensure that a borrower pays interest in a timely manner. Moreover, ensuring repayment of the borrowed money presents another aim of a lender.
While committed credit facilities may be short-term, they are generally long-term (usually up to five years).
[Last reviewed in January of 2025 by the Wex Definitions Team]
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