Market Trends 2020/21: Prepayment Premiums

Summary

This practice note provides an overview of prepayment premium provisions in credit agreements and discusses current market trends in publicly filed credit agreements from the second half of 2020 and the first half of 2021. Lenders commonly permit borrowers to voluntarily prepay a credit facility prior to maturity, but often require borrowers to pay a premium for prepayment. A prepayment premium is designed to compensate the lenders for not receiving their expected return on the funds advanced due to lost interest payments.