Kirkland Alert Kirkland & Ellis LLP

Treatment of Prepayment Prohibitions in Bankruptcy Is Proving to be a Tough Call for Courts

Restrictions on a borrower’s ability to prepay secured debt obligations are a common feature of modern bond indentures and credit agreements. Lenders frequently employ “no-call” provisions to prevent borrowers from refinancing or retiring outstanding debt prior to maturity. Loan documents also may permit prepayment at the borrower’s option, but conditioned on the payment of a “makewhole premium” (often referred to as a “prepayment penalty”).