Revolving Underwriting Facility (RUF)

What Is a Revolving Underwriting Facility (RUF)?

A revolving underwriting facility (RUF) is a form of revolving credit in which a group of underwriters consents to give loans in the event that a borrower can't sell in the eurocurrency market. The eurocurrency market is a marketplace where lending currencies are held as deposits at banks outside of the countries that issue that currency as legal tender.

Loans are generally delivered through the purchase of short-term euro notes — promissory notes that are normally issued at a discount and regularly mature in no less than one month to six months.

How a Revolving Underwriting Facility (RUF) Works

A revolving underwriting facility (RUF) is a credit-giving entity that focuses on the act of buying a borrower's unsold euro notes at a pre-determined price agreed upon by the two players at the hour of the contract. This credit line offers an extra level of security to the people who need to buy and borrow in the eurocurrency market, which operates in numerous global financial centers around the world — not just in Europe.

The assistance of the RUF loan is through an agreement between the borrower and an underwriting bank. The underwriting bank gives the borrower a backup contingency on the off chance that they can't sell their euro notes. In this occurrence, the borrower would just owe interest on the amount borrowed.

Loans worked with by a revolving underwriting facility (RUF), gave through the purchase of short-term euro notes, have a maturity (or repayment date) of six months or less.

A single bank will as a rule deal with the revolving credit part of this agreement, serving the job of the arranger. As the arranger, they perform a marketing job in selling the euro notes, while likewise taking on a small portion of the financing — regularly under 10%.

Benefits of a Revolving Underwriting Facility (RUF)

A considerable lot of similar parts of the eurocurrency market that make it so interesting and interesting to borrowers and investors are likewise the things that can introduce an increased level of risk.

The fundamental benefit of a revolving underwriting facility is the ability to bypass regulatory requirements, tax laws, and interest rate covers frequently engaged with domestic banking. Since the eurocurrency market is competitive and less regulated than the United States, it can all the while offer lower interest rates for borrowers and higher interest rates for [lenders](/loan specialist).

On the downside, less regulation likewise carries with it greater risks, especially during a run on the banks. This vulnerability definitively makes revolving underwriting facilities (RUFs) so engaging. In exchange for a fee, credit-conceding elements can offer a significant safety net, giving borrowers support that would assist them with staying away from, or if nothing else limit, a few losses in the frequently flighty eurocurrency market.

Revolving Underwriting Facility (RUF) versus Note Issuance Facility (NIF)

Both a revolving underwriting facility (RUF) and a note issuance facility (NIF) give short-to medium-term credit in the eurocurrency market. Where they principally vary is that a NIF purchases the outstanding notes that failed to sell in an arranged issuance, as opposed to offering loans.

NIFs were especially conspicuous during the 1980s. At the point when they do exclude the underwriting part that a revolving underwriting facility (RUF) offers, they are some of the time known as euro‐commercial paper (ECP) programs.

Features

• Loans worked with by a revolving underwriting facility (RUF), gave through the purchase of short-term euro notes, have a maturity of six months or less.
• A revolving underwriting facility (RUF) includes a group of underwriters that gives loans to borrowers unfit to sell in the eurocurrency market.
• The underwriting bank vows to buy unsold euro notes at a pre-determined price agreed upon by the two players at the hour of the contract.
• A single bank will ordinarily deal with the revolving credit part of this agreement, serving the job of the arranger.