Unlike term loans, with revolving facilities borrowers are at risk of lender refusal or inability to advance further funds until the end of the availability period. Prior to the end of their drawdown period, lenders may transfer their revolver commitments to other lenders.
A rollover loan is revolving credit advanced to refinance a maturing revolving loan of a borrower that is drawn in the same currency and on the maturity date of the maturing revolving loan. This protects borrowers from the risk of lender refusal or failure to readvance a revolving credit facility.
The repayment of a maturing loan under a revolving credit facility with the proceeds of a rollover loan without the use of cash is a cashless rollover. Revolving credit facilities commonly provide for cashless rollover.
Exercising the option to term out an RFC may be an alternative to rolling it over. Usually a feature of investment grade facilities, a term-out is a revolving facility with an option giving the borrower the right to convert any outstanding balance of the facility into a term loan at a specified conversion date and pay it off according to a predetermined repayment schedule. If termed out, the margin typically increases.
Borrowers recently have been seeking term-out options [even at a fee of 200 basis points], another sign that refunding risk is a concern.