14.6. Terms of Credit Agreements and Indentures

You may be tested on your understanding of terms used in credit agreements and indentures (agreements between bond issuers and bondholders). At a minimum, you should know the following terms:

• Repayment refers to the act of paying back money borrowed from a creditor. Depending on the context, the term can refer to repayment in installments over time or can refer to final repayment of the loan—for example, where payments have been interest-only and the principal is repaid in a lump sum.

• Prepayment is simply repayment of a loan or other debt obligation before it is due or mature. A credit agreement or indenture may completely prohibit voluntary prepayments, may allow prepayments but require the borrower to pay a penalty or premium, or may have no prepayment restriction at all.

• Events of default are events specified in a credit agreement that allow the creditor to demand immediate repayment of all or part of the outstanding loan amount. A missed payment or series of missed payments will usually trigger a default, but a contract may also specify other events of default, such as insolvency, a material change in the borrower’s financial condition or business