Voluntary and Mandatory Prepayment

Summary

This practice note discusses typical repayment and prepayment provisions in credit agreements. Term loans are normally repaid either in one single amount, known as "bullet repayment", or in installments. A revolving loan will normally be repaid on the last day of its interest period. Most credit agreements will allow the borrower to partially or fully repay the loan before the date or dates specifically set for repayment. This is known as "voluntary prepayment". This practice note also discusses mandatory prepayment events. Mandatory prepayments are usually triggered when a borrower accrues excess cash flow, sells fixed assets, receives casualty insurance proceeds, or issues new equity or certain types of indebtedness.