Baker McKenzie lawyers consider how a relatively
innocuous feature of corporate bonds is causing a stir due to
recent litigation and new regulations
Significantly, international high yield bonds and straight
debt capital markets instruments provide for the ability to
redeem the bonds prior to maturity, but at a 'make-whole'
premium designed to compensate an investor for the principal,
premium and interest the investor would have been entitled to
receive had the instrument been redeemed on its first call date
(or at maturity). A make-whole payment made to an investor is
typically equal to the net present value (NPV) of these future
payments calculated based on the market discount rate. The
make-whole provision is a yield-maintenance provision typically
included in the bond indenture, credit agreement, or other
forms of debt documents....