What Is a Revolving Underwriting Facility (RUF)?
A revolving underwriting facility (RUF) is one of those revolving credit during which a host of underwriters sees eye to eye to provide loans if a borrower isn’t in a position to advertise inside the eurocurrency market. The eurocurrency market is a marketplace where lending currencies are held as deposits at banks out of doors of the countries that issue that foreign exchange as jail delicate.
Loans are usually delivered all through the achieve of transient euro notes—promissory notes which might be maximum usally issued at a cut price and typically mature inside of of 1 month to six months.
Key Takeaways
- A revolving underwriting facility (RUF) involves a host of underwriters that provides loans to borrowers now not in a position to advertise inside the eurocurrency market.
- The underwriting monetary establishment promises to buy unsold euro notes at a pre-determined value agreed upon by way of every occasions at the time of the contract.
- Loans facilitated by way of a revolving underwriting facility (RUF), equipped all through the achieve of transient euro notes, have a maturity of six months or a lot much less.
- A single monetary establishment will maximum usally arrange the revolving credit aspect of this agreement, serving the location of the arranger.
How a Revolving Underwriting Facility (RUF) Works
A revolving underwriting facility (RUF) is a credit-granting entity that commits to the act of buying a borrower’s unsold euro notes at a pre-determined value agreed upon by way of every occasions at the time of the contract. This credit line supplies an extra level of protection to those who need to acquire and borrow inside the eurocurrency market, which operates in numerous global financial amenities far and wide the arena—no longer merely in Europe.
The facilitation of the RUF loan is through an agreement between the borrower and an underwriting monetary establishment. The underwriting monetary establishment items the borrower with a fallback contingency within the tournament that they may be able to now not advertise their euro notes. In this instance, the borrower would most effective owe pastime on the amount borrowed.
Loans facilitated by way of a revolving underwriting facility (RUF), equipped all through the achieve of transient euro notes, have a maturity (or reimbursement date) of six months or a lot much less.
A single monetary establishment will maximum usally arrange the revolving credit aspect of this agreement, serving the location of the arranger. Since the arranger, they bring out a promoting place in selling the euro notes, while moreover taking on a small portion of the financing—typically not up to 10%.
Benefits of a Revolving Underwriting Facility (RUF)
Lots of the equivalent aspects of the eurocurrency market that make it so exciting and fascinating to borrowers and patrons are also the problems that can supply an greater level of chance.
The main benefit of a revolving underwriting facility is the power to circumvent regulatory must haves, tax rules, and interest rate caps often occupied with house banking. Because the eurocurrency market is competitive and less regulated than america, it might similtaneously offer lower interest rates for borrowers and higher interest rates for lenders.
On the problem, a lot much less regulation moreover brings with it upper risks, in particular during a run on the banks. This uncertainty is precisely what makes revolving underwriting facilities (RUFs) so attention-grabbing. In industry for a fee, credit-granting entities will also be providing a valuable coverage web, providing borrowers with support that may lend a hand them avoid, or no less than lower, some losses inside the often-unpredictable eurocurrency market.
Revolving Underwriting Facility (RUF) vs. Practice Issuance Facility (NIF)
Each and every a revolving underwriting facility (RUF) and a realize issuance facility (NIF) provide short- to medium-term credit inside the eurocurrency market. Where they basically differ is {{that a}} NIF purchases the outstanding notes that didn’t advertise in a planned issuance, quite than offering loans.
NIFs were in particular prominent inside the Nineteen Eighties. When they do not include the underwriting phase {{that a}} revolving underwriting facility (RUF) supplies, they are every now and then known as euro‐industry paper (ECP) strategies.
