What is a 'Delayed Draw Term Loan' (DDTL) and when is it used?
A Delayed Draw Term Loan (DDTL) is a term loan commitment that is not drawn immediately at closing but remains available over an agreed period (typically 12–24 months). While undrawn it carries a commitment fee of typically 50–100 bps p.a.
When does the sponsor use it?
- Bolt-on acquisitions: pipeline capital without a repeated equity refresh
- Known capex programs: a large investment spread over 18 months
- Working-capital build-up in carve-outs: staggered financing needs
Deep diveShow more details
The platform company has an M&A pipeline of 3 bolt-ons at $30m each over 18 months. Instead of an equity refresh or a new TLB raise, the sponsor commits a $100m DDTL and draws it as each bolt-on closes.
| Aspect | DDTL | Standard TLB |
|---|---|---|
| Drawdown | flexible over the period | one-shot at Closing |
| Commitment Fee on Undrawn | yes (50–100 bps p.a.) | no |
| Coupon on Drawn | like TLB | like TLB |
| Lender Risk | higher (uncertain timing) | clearly defined |
The sponsor pays a premium for the optionality but can execute the M&A roll-up strategy without repeated lender approval.
Lenders want a clear use-of-proceeds definition — typically "Permitted Acquisitions" with an EBITDA minimum or sector restriction. Without a tight definition, no DDTL appetite.
Question: "When do you request a DDTL?"
Answer: "With a clearly defined M&A pipeline of 2–3 identified targets. In the middle market, typically for Buy-and-Build platforms with an aggressive add-on strategy"