U.S. Securities Law Briefing: Make-Whole Premiums in the Spotlight

A significant controversy has developed in the bond markets – both investment-grade and high-yield – as to whether acceleration of principal under an indenture that provides an issuer with a make-whole call option should entitle bondholders to the “make-whole premium.”

The issue arose following unexpected decisions in two recent federal court cases and strong advocacy by buy-side covenant review service Covenant Review. Consequently, any company currently planning an investment-grade or high-yield debt offering must decide whether to: 

  • Insert language in the indenture making it clear that no “make-whole premium” is due upon acceleration, which risks attracting Covenant Review’s aggressive attention and purchaser resistance; or
  • Omit any such clarifying language but be subject to the uncertainty as to when a make-whole premium is due.
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