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Edgy Banks Crack Down on Revolving Credit Lines

Shorter loan maturities, higher interest rates make 'safety nets' less safe for businesses

By Clay Dillow, Newser Staff

Posted May 4, 2009 9:04 AM CDT

(Newser) – Banks, lashed by the credit crunch and wary of defaults, have shortened the terms on revolving credit lines—typically running for 3 or 5 years—to less than a year, the Wall Street Journal reports. Often a little-used safety net before the recession, so-called revolvers had low interest rates; now, banks are charging higher rates determined by companies’ credit ratings and the costs of insuring the debt.

Both businesses and consumers are facing tougher terms at a time when access to cash can be the difference between surviving the downturn and not. Around $600 billion in revolvers are set to expire between now and the end of 2010. In the first quarter of 2009, 72% of revolving credit lines issued to investment-grade companies had 1-year maturities; none had 5-year terms.

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Toyota recently landed a new $5 billion revolver, but at a higher rate and with a 364-day term rather than the 3- or 5-year term big businesses used to get. (AP Photo)

Access to cash, even for the strongest companies, is tightening as banks shorten credit terms and raise interest rates. (Getty Images)

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A shorter tenor provides visibility into how credits perform and gives banks the option to reassess the situation in 12 months.
- Jonathan Burn, head of the high-grade loan syndicate at Barclays Capital in New York

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Edgy Banks Crack Down on Revolving Credit Lines