Make-Whole and No-Call Provisions in Bankruptcy


Summary

This practice note discusses the enforceability of make-whole and no-call provisions in bankruptcy. Unlike the many consumer debts that can be freely prepaid, indentures and credit agreements generally contain several provisions that are designed to ensure that the lender receives the full amount of income it bargained for, or compensation for the lost amounts, if the borrower pays the loan off early. In particular, lenders tend to be concerned about a "one-way ratchet" where the borrower can refinance the debt at any time if market conditions move in its favor, but the lender is held to the bargain if market conditions move in its favor.