This Legal Update explores why, in order for an underlying loan to be included in a warehouse facility’s borrowing base, the underlying loan must be fully funded (or, for any delayed draw term loan or revolving loan, a reserve set aside).

Examples of Fully Funded Eligibility Criteria:

• Such loan has been fully funded, and all amounts available to be borrowed thereunder have been fully advanced.
• Such loan has been fully funded, and all amounts available to be borrowed thereunder have been fully advanced; or, with respect to delayed draw term loans or revolving loans, any unfunded commitments (or applicable portions thereof) have been reserved in accordance with the Credit Agreement.

What does it Mean for a Loan to be “Fully Funded?”

Although nuanced in practice, from a lender’s perspective, the obligations under a loan facility generally fall into one of two categories: funded or unfunded.
A loan is “fully funded” when the lender has fully satisfied its obligation to lend funds to the borrower. Conversely, a loan is “unfunded” when any part of the lender’s obligation to fund remains outstanding.

Under a traditional term loan facility with a closing date commitment, the term loan would be deemed fully funded following the closing date when the lender satisfies its lending obligation. Under a delayed draw term loan facility, an aggregate term loan amount may be funded over a specified period of time, and will not be deemed fully funded until the earlier of (i) a specified termination date, and (ii) the date that the lender has funded all delayed draws. In such facilities, any amounts drawn and subsequently repaid by the borrower cannot be reborrowed.

Under a revolving credit facility, a borrower can draw and repay loans from the lender at any time during a specified commitment period. In such case,...