Revolving Underwriting Facility (RUF)

Revolving underwriting facility (RUF) is a form of revolving credit in which a group of underwriters agrees to provide loans if a borrower is unable to sell in the Eurocurrency market. The is 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. This market operates in many global financial centers around the world.

Loans facilitated by a RUF, provided through the purchase of short-term Euro notes, have a maturity of six months or less. Facilitation of the RUF loan is through an agreement between the borrower and an underwriting bank. The underwriting bank provides the borrower with a fallback contingency if they cannot sell their Euro notes. The borrower would owe interest only on the amount borrowed.

A revolving underwriting facility (RUF) is a credit-granting entity that commits to buy a borrower’s unsold Euro notes at a pre-determined price agreed upon by both parties at the time of the contract. This credit line offers an extra level of security to those who want to buy and borrow in the Eurocurrency market.

A single bank will usually manage the revolving credit aspect of this agreement. This bank serves the role of the arranger. As the arranger, they perform a marketing role in selling the Euro notes, while also taking on a small portion of the financing.

A RUF differs from a note issuance facility in that the underwriters provide loans instead of purchasing the outstanding notes that failed to sell. In either case, both a RUF and a NIF provide short- to medium-term credit in the Eurocurrency market. When a NIF does not include the underwriting component that a RIF offers, they are sometimes known as euro‐commercial paper programs (ECPs).

Many of the same aspects of the Eurocurrency market that make it so exciting and appealing to borrowers and investors are also the things that can present increased risk. This appeal includes the ability to circumvent regulatory requirements, tax laws and interest rate caps often involved in domestic banking. Being able to bypass these regulations is especially appealing in highly-regulated countries like the United States. 

Given these heightened levels of risk, both RUFs and NIFs provide a valuable safety net, providing borrowers with support which would help them avoid, or at least minimize, some losses in the often-unpredictable Eurocurrency market.