Default Interest, Late Fees and Prepayment Premiums: Drafting and Enforcement

Hot Button Issues for Lenders on Acceleration, Enforceability in Bankruptcy, Lessons From Recent Case Law

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, September 5, 2019

Recorded event now available

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Program Materials

This CLE webinar will examine loan provisions that can become critically important in an event of default, including notice and cure, acceleration, default interest, late fees, and prepayment or "make-whole" premiums. The panel will also discuss pitfalls to avoid in enforcement of these provisions and their treatment in bankruptcy as informed by recent case law.

Description

Default and acceleration typically trigger various remedies and financial penalties under commercial and real estate loans. It is critically important for the loan documents to thoroughly spell out what constitutes a default (and what is a "continuing default") when a notice of default is required, what events of default can and cannot be cured, and the cure period concerning both monetary and non-monetary defaults.

When a loan is deemed accelerated, the lender will likely charge default interest, a make-whole or prepayment premium, and perhaps a late fee on the outstanding balance. The documents must set forth the payment obligations to which these charges apply, and the lender must follow the letter of the documents (including a separate notice of acceleration if required), or the borrower may have a legal basis to avoid these charges.

When a lender is seeking pre-petition default interest in a bankruptcy context, courts typically look to whether the amount constitutes permissible liquidated damages or an unenforceable penalty under applicable state law. The enforceability of "make-whole" premiums in bankruptcy have generally been dependent on state law contract interpretation and courts' legal determinations of whether such premiums should be characterized as liquidated damages or more recently as "unmatured interest" under Section 502(b)(2) of the Code. Case law continues to develop and can be very fact-specific.

Listen as our authoritative panel analyzes default and acceleration provisions and default interest, prepayment, and other charges typically assessed in commercial and real estate loans. The group will also review recent bankruptcy and other case law relating to the collection of default interest, late fees, and make-whole premiums.

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Outline

  1. Default provisions
    1. Notice and cure, grace periods, acceleration
    2. The distinction between a "default" and an "event of default"
    3. Monetary vs. non-monetary defaults
  2. Default interest and last fees
  3. Prepayment or make-whole premiums
  4. Treatment in bankruptcy
  5. Recent case law

Benefits

The panel will review these and other critical issues:

  • How do notice and cure provisions vary for monetary and non-monetary defaults?
  • From the lender's standpoint, what should the documents say about prepayment premiums in the event of an acceleration of the loan?
  • What are some pitfalls to avoid in exercising remedies after default? After acceleration?
  • How have the courts looked at default interest, late fees, and prepayment premiums in bankruptcy?

Faculty

Okike, Christine
Christine A. Okike

Partner
Skadden Arps Slate Meagher & Flom

Ms. Okike represents debtors, creditors, equity holders, investors, sellers, purchasers and other parties-in-interest...  |  Read More

Walker, Eric
Eric E. Walker

Partner
Perkins Coie

Mr. Walker focuses his practice on all aspects of commercial litigation, financial restructuring and bankruptcy,...  |  Read More

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