A non-call period credit agreement, or NCP credit agreement, is a type of loan that includes a period during which the borrower is not allowed to pay off the loan early, or “call” the loan. This period is typically set by the lender and can vary in length depending on the specific terms of the loan.
Why would a lender include a non-call period in a credit agreement? There are a few reasons. First, it allows the lender to better predict their cash flow over a certain period of time. If a borrower could pay off the loan early, the lender would not have a guaranteed stream of income for the full length of the loan.
Second, a non-call period can also provide the lender with some protection in case interest rates change. If interest rates rise significantly, the lender may prefer to keep the borrower locked into the original interest rate for a certain period of time. Conversely, if interest rates decline, the borrower may wish to refinance the loan at a lower rate, but the non-call period would prevent them from doing so.
For borrowers, an NCP credit agreement can provide some certainty around their debt payments. They know that they will be paying a fixed amount for a certain period of time, which can help with budgeting and planning. However, it`s important to note that if a borrower does need to access additional funds during the non-call period, they may not be able to do so using the same collateral that secured the original loan.
It`s also worth noting that non-call period credit agreements are not particularly common, and are typically used in certain types of lending situations. For example, they may be used in situations where the lender is providing financing for a specific project or asset, and wants to ensure that the borrower does not pay off the loan before the project is complete or the asset is fully paid off.
Overall, a non-call period credit agreement can be a useful tool for both lenders and borrowers in certain situations. It provides lenders with some protection and predictability, while giving borrowers some certainty around their debt payments. However, it`s important for both parties to carefully review the terms of the loan and understand the implications of the non-call period before entering into the agreement.