Attack on the make-whole

Author: | Published: 8 Jul 2019

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....