What is a commitment letter in leveraged finance?

A commitment letter in leveraged finance is a crucial document that formalizes the agreement between a lender and a borrower regarding the terms of financing. It typically outlines the lender's commitment to provide funding for a specific transaction, which can include the amount, interest rate, repayment schedule, and any applicable covenants or conditions. While it serves as a detailed overview of the loan terms, it is more than just a simple outline; it often spans several pages—usually about 10 to 15—encompassing all relevant details about the financing arrangement. This degree of detail ensures that both parties have a clear understanding of the expectations and obligations involved in the deal.

In the context of this question, it's important to note how the other options differ from the actual context of a commitment letter. While the first option mentions the terms of the loan, it does not sufficiently capture the formal commitment aspect that defines a commitment letter. The third option's focus on an investment strategy summary does not align with the specificity of terms required in a commitment agreement. The fourth option, which refers to financial forecasts, relates to projected outcomes rather than the commitments made between the borrower and lender. Thus, option B distinctly gets at the essence of what a commitment letter entails in leveraged finance.