I’m a Secured Creditor so I’m Entitled to Default Interest, Right?

September 4, 2014
Chapman Sidebar

As prices for distressed loans have risen, holders of secured claims are focusing not only on the recovery of principal but also on repayment of interest, fees and pre-payment-premiums or “make whole” payments. As we discussed in our prior client alert entitled "Make-Whole Provisions Continue to Cause Controversy: What You Can Do to Avoid Litigation," whether or not a secured creditor is entitled to a make-whole premium is primarily dependent on the contractual language in the credit agreement or indenture and the facts surrounding the repayment of the debt obligations. Similarly, whether or not secured creditors are entitled to claim default interest will depend on several factors, including the language in the loan agreement, the value of the collateral securing the loan, the nature of the default triggering the right to default interest and the equities of the case. This alert discusses the primary questions secured creditors should ask in determining whether their claim for default interest is likely to be allowed.

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