Make-Whole Mayhem

<i><b>Uncertain Treatment of Make-Whole Premiums Upon Bankruptcy-Induced Acceleration and Redemption of Indentures</b></i><p>Recently, tempted by attractive interest rates, certain borrowers have sought to use the bankruptcy process to shield themselves from their obligations to pay make-whole premiums contemplated by their indenture documents. Although certain courts have allowed crafty borrowers to shed unwanted make-whole obligations through the bankruptcy process, other courts refuse to sanction such manipulation.

10 minute read February 01, 2017 at 12:04 AM
By
Jeffrey R. Gleit and Nathaniel R.B. Koslof
Make-Whole Mayhem

Make-whole premiums are essentially prepayment penalties imposed on borrowers when loans are paid off in advance of their maturity dates. These premiums are increasingly common yield protection tools meant to compensate lenders for interest they would otherwise receive for the remainder of the term but for the unexpected early repayment.

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