Revolving Credit Facility Accounting Treatment: Costs and Fees

Under U.S. GAAP, the accounting treatment for a revolving credit facility departs from ordinary term debt in one important way: qualifying setup costs are deferred as an asset rather than netted against the liability, then amortized into interest expense over the facility’s term. Ongoing interest accrues on the drawn balance, commitment fees on the undrawn portion hit the income statement as incurred, and the drawn balance is classified current or noncurrent based on maturity, refinancing ability, and covenant status at the balance sheet date.

Setup Costs Are Deferred as an Asset, Not Netted Against Debt

Standing up a revolver produces upfront costs: legal fees, underwriting fees, and arrangement fees paid to third parties at closing. These qualify as debt issuance costs when they are incremental to the transaction and directly attributable to the financing. Internal salaries and general overhead do not qualify even if staff time was spent on the deal.

For most debt instruments, ASU 2015-03 requires debt issuance costs to be presented as a direct deduction from the face amount of the liability, similar to a bond discount. The FASB concluded that showing these costs as a standalone asset overstated total assets and obscured the true cost of borrowing.¹

Revolving facilities are carved out of that rule. Because the drawn balance moves constantly, netting fixed issuance costs against a shifting liability creates practical problems. In ASU 2015-15, the SEC staff confirmed it would not object to deferring debt issuance costs related to a line-of-credit arrangement, presenting them as an asset, and amortizing them ratably over the facility’s term. This holds whether or not any borrowings are outstanding at the balance sheet date.²

The practical result: a $100 million revolver with $1 million in qualifying issuance costs produces a $1 million deferred charge asset. Nothing is netted against a liability. The distinction matters to statement readers because a deferred charge increases reported total assets, while a contra-liability reduces reported debt. Mixing up the two treatments is one of the more common errors in revolver accounting.

Amortizing the Deferred Costs

Once capitalized, debt issuance costs are expensed systematically over the facility’s term. Under ASC 835-30, the default is the effective interest method, which produces a constant yield on the carrying amount of the debt.³

The codification permits other methods when the result is not materially different, and for revolvers straight-line is the prevailing approach. The SEC staff guidance in ASU 2015-15 specifically refers to amortizing issuance costs “ratably” over the arrangement’s term, which effectively endorses straight-line treatment.²

On a five-year facility with $1 million in setup costs, straight-line amortization produces $200,000 of expense per year. That amount flows through interest expense rather than a separate line, and the deferred charge asset shrinks by the same amount each period until it reaches zero at maturity.

Interest and Commitment Fees

Interest accrues on the outstanding principal, typically daily. Most revolvers use a floating rate tied to a benchmark such as the Secured Overnight Financing Rate plus a credit spread that varies with borrower risk.⁴ Because the drawn balance moves with each borrowing and repayment, quarterly interest expense can swing meaningfully. Total interest expense for a period combines cash interest on borrowings with amortization of the deferred issuance costs described above.

Lenders also charge a commitment fee (sometimes called an unused facility fee) on the undrawn portion, compensating the bank for keeping capital available. These fees typically run from 0.10% to 0.50% annually on the undrawn balance depending on credit quality and market conditions.

Commitment fees that accrue over the life of the facility based on usage are recognized as a period expense when incurred. The fee relates to liquidity availability during that period rather than to a specific borrowing event, so matching it to the period it covers is the appropriate treatment. Presentation is typically within interest expense or a closely related financing cost.

Current vs. Noncurrent Classification

Where the drawn balance sits on the balance sheet drives the current ratio, working capital, and every liquidity metric analysts use, so getting classification right matters.

The baseline rule: any liability due within twelve months of the balance sheet date is current. A revolver maturing in the next year falls squarely into current liabilities. A drawn balance on a multi-year facility generally belongs in noncurrent liabilities because the borrower has a contractual right to keep funds outstanding beyond twelve months.

The wrinkle is the refinancing exception. A revolver maturing in the current period can still be classified as noncurrent if the borrower demonstrates both the intent and the ability to refinance on a long-term basis. Under ASC 470-10-45-14, demonstrating ability requires one of two things: a long-term refinancing already completed after the balance sheet date but before financial statements are issued, or a binding financing agreement that permits refinancing on a long-term basis.⁵

That agreement must be non-cancelable by the lender and must extend the maturity beyond one year from the balance sheet date. A verbal assurance or a term sheet under negotiation does not qualify. Without a binding agreement in place before financial statements are issued, the balance stays current no matter how confident management is.

Covenant Violations Can Force a Reclassification

Financial covenants blindside companies more often than any other classification issue. A revolver typically imposes ongoing requirements such as a maximum leverage ratio or a minimum interest coverage ratio. Breaching one, even technically, can push the entire outstanding balance from noncurrent to current.

Under ASC 470-10-45-11, a long-term obligation that becomes callable because of a covenant violation at the balance sheet date is classified as current. If the lender has the legal right to demand repayment immediately, the debt is effectively due on demand.

Two narrow exceptions preserve noncurrent classification:

A lender waiver. The creditor waives the right to demand repayment for more than one year from the balance sheet date. The waiver must be binding and irrevocable; one the bank can revoke at will does not count.
A probable cure within a contractual grace period. If the loan agreement provides a cure window and the borrower is probably going to cure inside it, noncurrent treatment can be preserved.

Even with a waiver on the current violation, noncurrent treatment is not automatic going forward. If the lender retains the right to call on future violations and the borrower is probably going to breach the same or a more restrictive covenant within the next twelve months, the debt still moves to current. Auditors and preparers frequently disagree on this forward-looking assessment, which needs careful documentation of projected compliance.

Amendments, Extensions, and Refinancings

Revolvers are routinely amended, extended, or restructured before maturity. The accounting for those changes turns on a borrowing-capacity comparison under ASC 470-50-40-21, which works differently from the 10% cash-flow test used for term loan modifications.

The test multiplies remaining term by maximum available credit for both the old and new arrangements. If the new facility’s borrowing capacity is equal to or greater than the old one, unamortized deferred issuance costs from the old arrangement, plus any new fees paid to the creditor and third-party costs, are all deferred and amortized over the new term.⁶

If borrowing capacity decreases, the math changes. New fees and third-party costs are still deferred under the new arrangement, but unamortized old costs are written off in proportion to the reduction. If capacity drops by 30%, 30% of the unamortized old costs is expensed immediately and the remaining 70% carries forward.

Replacing the facility with a new lender triggers a full write-off. When the borrower terminates the existing agreement and moves to a different creditor, all unamortized deferred costs from the old facility and any termination fees are expensed immediately.⁶

Letters of Credit Reduce Capacity Without Creating a Liability

Companies often use part of a revolver to back standby letters of credit rather than draw cash. A letter of credit issued under the facility does not create a balance sheet liability at issuance because no cash has been borrowed. The bank’s commitment simply shifts from the undrawn pool to a contingent obligation.

The practical impact is on capacity. A company with a $100 million facility and $15 million in outstanding letters of credit can only draw $85 million in cash, even though the balance sheet shows no liability for the letters of credit themselves. That reduction has to be disclosed in the footnotes so readers can see the true available liquidity. Fees associated with letters of credit are generally treated as operating expenses when incurred.

Footnote Disclosure Requirements

Footnote disclosure must give statement users enough information to assess liquidity risk and borrowing capacity. ASC 470-10-50-6 requires disclosure of the amount and terms of unused commitments for long-term financing arrangements, including commitment fees and any conditions under which the lender may withdraw the commitment. For short-term arrangements, the disclosure covers the amount and terms of unused lines of credit and whether those lines support a commercial paper program.⁷

Standard practice extends beyond the baseline to include:

Maximum facility size and maturity date.
Interest rate terms, including whether the rate is fixed or floating, the reference benchmark, and the applicable credit spread.
Collateral pledged to secure the facility.
Key financial covenants, their thresholds, and whether the borrower was in compliance at the balance sheet date.
The breakdown of drawn, undrawn, and letter-of-credit amounts so readers can determine remaining availability.

Public companies also disclose the weighted-average interest rate on short-term borrowings outstanding at each balance sheet date presented. When a covenant has been breached and waived, the footnote should explain the nature of the violation, the waiver terms, and whether the borrower expects to remain in compliance. These are often the first pages analysts turn to when testing whether headline liquidity is as strong as it looks.

1
Financial Accounting Standards Board. Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
2
PwC Viewpoint. Interest – Imputation of Interest (Subtopic 835-30)
3
Deloitte Accounting Research Tool. Deloitte Roadmap – Issuer Accounting for Debt – 6.2 Interest Method
4
Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
5
Deloitte Accounting Research Tool. Deloitte Roadmap – Issuer Accounting for Debt – 13.7 Refinancing Arrangements
6
Deloitte Accounting Research Tool. Deloitte Roadmap – Issuer Accounting for Debt – 10.6 Modifications and Exchanges of Credit Facilities
7
Deloitte Accounting Research Tool. Deloitte Roadmap – Issuer Accounting for Debt – 14.4 Disclosure