Security Package & Loan Documentation
Mandatory Prepayment Events
Summary
Mandatory prepayment provisions require loan repayment after defined events such as a vessel sale, insurance total-loss proceeds or specified breach of collateral requirements.
Why this matters in ship finance
They prevent funds from remaining outstanding after agreed collateral or economic assumptions materially change.
The concept
Triggers may include asset disposal, total loss, change of control, illegality, casualty proceeds or lender exposure limits. Repayment amounts and timing can include fees, break costs and release conditions.
How it is used in practice
Model sale proceeds net of claims, debt outstanding, swap termination, tax, penalties and residual equity to identify the financial effect.
Practical issues
Not every adverse event is a mandatory prepayment; some are covenant breaches or defaults. The loan agreement controls.
How ShipFinance.ai uses this concept
Provide event-driven repayment and collateral-release scenarios.
Key takeaways
- Identify triggers precisely
- Prepayment may create swap break costs
- Security release and debt discharge must be coordinated