What is the nature of interest payments in a "Revolver" structure?

In a "Revolver" structure, interest payments are indeed calculated based on the average beginning and ending balances. This method reflects the nature of revolving credit facilities, which allow borrowers to draw down and repay funds as needed, similar to a credit card. The calculation of interest based on average balances ensures that the borrower pays interest proportionate to the actual usage of the facility over a specific period.

This approach provides a fair representation of the borrowing costs incurred over time since borrowers may not use the entire facility uniformly. By averaging the beginning and ending balances, lenders can align the interest charged with the actual amount borrowed, thus creating a more accurate reflection of the borrower's borrowing activity.

Other methods of calculating interest payments, such as flat fixed amounts or reliance on stock options, do not fit the nature of revolver structures, as these approaches would not account for the variability and flexibility inherent in revolving credit. Additionally, while fluctuating interest rates can apply to the calculation, the key feature of revolver interest payments lies primarily in their connection to the average balance rather than solely on variable rates or specific fixed amounts.