DDTL vs Revolver
Definition
A delayed draw term loan (DDTL) and a revolver are both committed facilities the borrower draws after closing, and that is where the resemblance ends. A DDTL is a term loan taken in installments: each draw becomes permanent term debt that amortizes and can never be reborrowed once repaid, and the right to draw expires at the end of a commitment period of one to three years. A revolver is a line of credit: amounts drawn can be repaid and drawn again at any time until maturity. Lenders use DDTLs to fund acquisitions and capital projects that are planned but not yet closed; revolvers fund working capital, letters of credit and short-term liquidity. The fee, the draw conditions and the covenant package all follow from that difference in purpose.
Why it matters
The two facilities answer different questions about a borrower. A DDTL says the lender expects the company to grow by acquisition or investment and has already underwritten that growth; a large revolver says the business needs liquidity through its operating cycle. For an investor in a private credit fund or a BDC, the mix matters twice. Undrawn DDTL commitments are future deployment at fixed spreads, which is a feature in a widening market and a liability in a tightening one, and they sit off the balance sheet until drawn. Revolver exposure is the part of the book most likely to be drawn in a downturn, exactly when the lender would rather not fund. Reading a lender's unfunded commitments by type tells you what its next two years of deployment already look like.
Common misconceptions
- •A DDTL is not a slow revolver. Once drawn it is permanent term debt that amortizes; repaying it does not restore the commitment. A revolver's whole purpose is that repaying it does.
- •The undrawn fee is not the same on both. A revolver's commitment fee is a liquidity charge of tens of basis points; a DDTL's ticking fee is a fraction of the drawn margin, because the lender has reserved long-term capital.
- •DDTL draws are not at the borrower's discretion the way revolver draws are. They are tied to a purpose and to conditions, usually a pro forma leverage test, that a revolver draw does not carry.
- •A DDTL is not off-balance-sheet debt for the borrower once drawn, and the undrawn commitment is not free for the lender: fund investors should count unfunded DDTL commitments in the lender's deployment pipeline and its liquidity planning.
Technical details
Side by side
Purpose: DDTL funds planned acquisitions, capex or other defined uses; revolver funds working capital, letters of credit, seasonal needs and general liquidity.
Reborrowing: DDTL, no, repaid amounts permanently reduce the loan; revolver, yes, repaid amounts restore availability until maturity.
Availability period: DDTL, a commitment period of typically 12 to 24 months (up to 36 in some acquisition facilities) after which undrawn commitments lapse; revolver, the full term to maturity, typically five years.
Draw conditions: DDTL, a permitted purpose, no default, pro forma leverage or coverage test, sometimes a minimum draw; revolver, no default and accurate representations, with a borrowing base test in asset-based deals.
Undrawn cost: DDTL, a ticking fee, commonly 50 percent of the drawn margin, often stepping up in stages (for example 0 percent for the first 60 days, half the margin thereafter, the full margin after a year); revolver, a commitment fee of about 25 to 50 basis points, sometimes grid-based on leverage.
Drawn cost: DDTL, the term loan margin, usually identical to the borrower's initial term loan; revolver, a lower margin, often 25 to 75 basis points inside the term loan.
Repayment: DDTL, amortizes on the same schedule as the initial term loan once drawn, typically 1 percent a year with a bullet at maturity in broadly syndicated deals; revolver, no scheduled amortization, repaid at maturity or as drawn balances are paid down.
Covenants: DDTL, the term loan package; revolver, in covenant-lite deals the only maintenance covenant, springing at a utilization threshold.
Security: both usually share the same first-lien collateral package and rank pari passu.
Worked example: an add-on acquisition
A sponsor-backed company closes a $300 million first-lien term loan with a $100 million DDTL and a $50 million revolver. The DDTL's commitment period is 24 months; its ticking fee is half the 450 basis point margin, so 225 basis points on the undrawn amount from day 61.
Month 9: the company buys a competitor for $80 million and draws $60 million of the DDTL, having shown pro forma leverage under the 6.0x draw condition. The $60 million becomes term debt at S plus 450, amortizing at 1 percent a year alongside the original loan.
Month 14: a working-capital swing draws $20 million on the revolver at S plus 375; it is repaid in month 17 and the full $50 million is available again.
Month 24: the remaining $40 million of DDTL commitment expires undrawn. The lender earned the ticking fee on it for about 22 months; the borrower never paid a drawn margin on it. The revolver keeps running to its year-five maturity.
What the lender's books show at month 24: $360 million of funded term debt, $0 of unfunded DDTL, $50 million of unfunded revolver commitment that could be drawn tomorrow.
Draw mechanics and conditions in detail
DDTL draw notices specify amount, date and purpose; the agreement lists permitted uses, most often permitted acquisitions, capital expenditures, or the repayment of specific debt. Some facilities allow general corporate purposes, which lenders price higher.
Conditions precedent usually include no default or event of default, bring-down of representations, and a pro forma financial test, typically total or first-lien net leverage at or below a stated level after giving effect to the draw and the acquisition it funds.
Minimum draw sizes and a cap on the number of draws are common, since each draw is a term loan funding with its own interest period.
Revolver draws follow a simpler notice; asset-based revolvers add a borrowing base certificate showing eligible receivables and inventory support the requested balance.
What each tells you about the credit
A large DDTL relative to the initial term loan signals a buy-and-build plan the lender has pre-approved; the draw conditions show how much leverage the lender will tolerate for it.
Heavy revolver utilization outside seasonal patterns is an early warning; lenders watch average drawn balances and the springing covenant threshold for exactly that reason.
Undrawn DDTL commitments expiring unused often mean the acquisition pipeline did not materialize, which is neutral for the lender's credit and negative for its deployment.
In fund reporting, unfunded commitments are disclosed separately from funded principal; the split between DDTL and revolver commitments is usually visible in the schedule of investments.
Where the terms live
The credit agreement defines each facility, its commitment period, its permitted uses and conditions precedent, and the fee letter sets the ticking and commitment fees. For a BDC or interval fund, the schedule of investments lists unfunded commitments by borrower and facility type, and the notes to the financial statements total them.
For a listed private credit vehicle, compare unfunded commitments to available liquidity: a lender with more unfunded DDTL and revolver commitments than cash and credit lines is relying on repayments to fund its promises.
Frequently asked questions
- What is the difference between a DDTL and a revolver?
- A DDTL is term debt drawn in pieces: once drawn it stays outstanding, amortizes and cannot be redrawn after repayment, and the ability to draw expires after the commitment period. A revolver can be drawn, repaid and redrawn repeatedly until maturity. DDTLs fund planned acquisitions and capex; revolvers fund working capital and liquidity.
- Can a delayed draw term loan be reborrowed?
- No. Amounts repaid under a DDTL are gone; the commitment reduces permanently. That is the defining difference from a revolver, whose repaid amounts restore the available commitment.
- Which is more expensive, a DDTL or a revolver?
- Drawn, a DDTL usually carries the same margin as the borrower's initial term loan, which is higher than a revolver margin. Undrawn, a DDTL's ticking fee (commonly half the drawn margin, sometimes stepping up over the commitment period) is typically higher than a revolver's commitment fee of 25 to 50 basis points, because the lender has committed long-term capital rather than short-term liquidity.
- What conditions apply to a DDTL draw?
- Draws are usually limited to a stated purpose, most often permitted acquisitions or capital expenditure, and are conditioned on no default, pro forma compliance with a leverage test, and sometimes a minimum draw size. A revolver draw usually requires only the absence of a default and the accuracy of representations.
- Why do private credit lenders like DDTLs?
- Because they lock in future deployment at today's pricing with a known borrower and a known purpose. A DDTL lets a direct lender fund a sponsor's buy-and-build strategy add-on by add-on without re-underwriting each time, while earning a ticking fee on the undrawn commitment.
- Does a revolver have a financial covenant when the term loan does not?
- Often. In covenant-lite structures the term loan carries no maintenance covenant, but the revolver keeps a springing leverage covenant tested only when revolver utilization exceeds a threshold, commonly 35 percent of commitments. A DDTL, being term debt, follows the term loan's covenant package, not the revolver's.
- How do DDTL and revolver differ from a term loan?
- A term loan is funded in full at closing and amortizes from day one. A DDTL is the same instrument funded later, in pieces. A revolver is not term debt at all. The revolver versus term loan comparison is on its own page.