A ticking fee is a charge an acquirer pays its lenders for keeping committed financing on standby between the day the commitment letter is signed and the day the loan actually funds. It compensates the lender for capital that is reserved but idle, and it pressures the borrower to close quickly. On a billion-dollar financing, a ticking fee can run into the millions of dollars over just a few months.
What the Fee Actually Covers
When a company arranges debt for an acquisition, lenders sign a commitment letter promising to fund at closing. Between that promise and the actual disbursement, the lender’s capital sits tied up. The ticking fee is the price of that reservation. Think of it as rent on money you have booked but not yet picked up.
It is not the same thing as a standard commitment fee on a revolver. A commitment fee compensates a lender for keeping a credit line available during the life of the loan and runs on undrawn amounts once the facility exists. A ticking fee covers the earlier gap, before the loan exists at all. Once the loan funds, the ticking fee stops and ordinary interest takes over.
These fees appear most often in leveraged buyouts and large corporate mergers, where the stretch between signing and closing can run for months. Bridge loan commitments, term loan facilities, and direct lending arrangements commonly include them. The lender bears real risk during the waiting period: interest rates can move, credit markets can tighten, or the borrower’s financial condition can deteriorate, all while the capital stays parked.
When the Fee Starts Running
The commitment letter names a “ticking date,” the day the fee begins to accrue. That is not always the day the commitment is signed. Many deals include an initial fee-free window of 30 to 90 days, giving the parties room to work toward closing before costs start piling up. After that grace period ends, the meter starts.
Different agreements set the trigger differently. Some tie the fee to a fixed number of days after signing. Others link it to a specific event, such as the allocation of loan commitments among syndicate lenders. Private credit deals tend to have shorter runways, with accrual sometimes starting as early as 30 to 45 days after signing. The fee then accrues daily on the committed but unfunded amount until either the loan funds or the commitment terminates.
Every commitment letter also includes an outside date, sometimes called the drop-dead date, which is the final deadline for closing. If the acquisition has not closed by then, the lender’s obligation to fund disappears. Any ticking fees that accrued along the way remain owed. Some agreements let the borrower push the outside date back, but the extension usually carries a price, often a higher ticking fee rate, a bigger reverse termination fee, or both.
How Ticking Fees Are Calculated
Ticking fees are stated in basis points on the committed but unfunded loan amount. One basis point equals one-hundredth of one percent. A flat 15 basis points per year on a $1 billion commitment produces $1.5 million annually, prorated for the days the fee actually runs.
Flat rates are the exception. The more common structure is a step-up, where the rate rises the longer the deal takes to close. A typical schedule looks like this:
- First 45 days: 0% of the applicable loan margin (the initial grace period)
- Days 46 through 90: 50% of the applicable loan margin
- Day 91 onward: 100% of the applicable loan margin
A Lightpath Technologies credit agreement filed with the SEC uses exactly this structure, with the ticking fee stepping from zero to 50% to 100% of the Eurodollar loan margin at each threshold. The same agreement calculates the fee on a 360-day year using actual elapsed days, which is the standard convention in U.S. commercial lending.1SEC.gov. Lightpath Technologies Credit Agreement Amendment
The escalation is the whole point. A borrower staring at 100% of the loan margin as a ticking fee has strong reason to close. On a deal with a 400 basis point loan margin, the top-tier ticking fee is 400 basis points per year on the unfunded amount. For a $500 million commitment, that comes to roughly $20 million a year, or about $55,000 a day. Those numbers concentrate minds.
Some private credit deals skip the step-up and charge a single flat fee once the ticking period begins, ranging from 50 to 250 basis points, rather than pegging the rate to the loan margin. The choice depends on the lender’s bargaining power and the expected timeline to close.
Why Regulatory Delay Matters
The most common reason ticking fees turn expensive is regulatory delay, and antitrust review is the usual culprit. Nearly every large U.S. acquisition requires a Hart-Scott-Rodino premerger notification filing with the Federal Trade Commission and the Department of Justice. The initial waiting period is 30 days, or 15 days for cash tender offers. If the reviewing agency issues a “second request” for more information, the waiting period extends until both parties substantially comply, followed by another 30-day review window.2Federal Trade Commission. Premerger Notification and the Merger Review Process
Second requests are notoriously slow. Producing the required documents and data can take months, and during that whole stretch the lender’s capital stays committed and the fee keeps accruing. Add foreign antitrust approvals on cross-border deals and the delay can push well past the grace period and deep into the highest step-up tier. That is where a ticking fee stops being theoretical and starts showing up as a real line item.
Are Ticking Fees Refundable
Generally, no. Credit agreements typically state that all fees are fully earned when paid and non-refundable regardless of what happens to the deal. If the acquisition collapses after three months of accrual, the borrower still owes every dollar. Market practice has tightened further in recent years, with more deals requiring ticking fees to be paid whether or not the transaction closes, and in some cases requiring payment at commitment termination rather than only at funding.
That non-refundability turns the fee into a sunk cost. It is also why the grace period and step-up schedule matter so much in negotiation. A borrower who secures a 90-day fee-free window instead of a 30-day one can save millions if regulatory review runs long.
What Borrowers Can Negotiate
Nearly every element of a ticking fee is negotiable, and the outcome tracks market conditions and the borrower’s leverage. When credit markets are loose and lenders compete for mandates, borrowers can win longer grace periods and gentler step-ups. In tighter markets, lenders push for shorter runways and steeper escalation.
The main levers are the length of the fee-free period, the step-up percentages at each threshold, whether the rate is tied to the loan margin or set as a flat number, and whether the aggregate fee is capped. Caps do appear, though they are more common in merger agreement mechanics than in the credit facility itself.
How Ticking Fees Interact With Reverse Termination Fees
Some transactions fold the ticking concept into the reverse termination fee rather than putting it in the credit agreement. A reverse termination fee is what the buyer owes the seller if the buyer fails to close, usually because financing falls through or a required regulatory approval is not obtained.
One structure is a “growing reverse termination fee,” where the buyer makes daily deposits into escrow after a specified trigger. If the deal closes, the deposits get credited against the purchase price, so the buyer pays nothing extra. If regulators block the deal, the seller keeps the deposits. That structure appeared in the 2012 sale of BP’s Western U.S. refining assets to Tesoro, where the buyer funded daily deposits of $330,000, capped at $50 million, once the seller had complied with antitrust second requests. A simpler variation, used in the Akorn/Hi-Tech Pharmacal transaction, increased the fixed reverse termination fee from $41 million to $48 million if the buyer chose to extend the outside date.
These hybrid mechanisms allocate the economic cost of delay between buyer and seller. When the delay comes from regulatory review that neither side fully controls, sharing the pain often makes more sense than loading it all onto one party.