Committed and uncommitted facilities

Two facilities can carry the same limit, the same collateral and the same index, and be fundamentally different instruments. The difference is whether the lender has promised anything.

A committed facility is a contractual obligation to advance funds up to the limit, for a stated term, subject only to conditions written into the agreement. It has a maturity date. It usually carries covenants, a commitment fee on the undrawn portion, and a heavier documentation package. The lender can decline a draw only on grounds the agreement names.

An uncommitted facility promises nothing. The limit is an indication of how much the institution presently expects to lend, not an obligation to lend it. A draw request may be declined, the whole balance may be demanded, and there is no maturity date because there is no term. Track 5 lesson 1 covered the demand feature from the borrower's side; the structural label for it is that the facility is uncommitted.

The distinction shows up on the lender's balance sheet before it shows up anywhere else. A committed undrawn line consumes capital and liquidity resources even when nothing is drawn, because the institution must be able to fund it on demand. An uncommitted line consumes very little until it is used. That difference in carrying cost is the whole economic content of the distinction, and it is why the uncommitted structure is so much more common outside corporate lending: the resources it ties up scale with what has been drawn rather than with what was promised.