What is a Prepayment fee?
(top) A prepayment fee is a feature generally associated with institutional term loans. This fee is seen mainly in weak markets, as an inducement to institutional investors. Typical prepayment fees will be set on a sliding scale, 2% in year one and 1% in year two, for instance. The fee may be applied to all repayments under a loan or “soft” repayments, those made from a refinancing, or at the discretion of the issuer (as opposed to hard repayments made from excess cash flow or asset sales).
