Soft-Call Protection
Private Credit glossary · Documentation, Covenants & Terms
Definition
A declining prepayment premium charged for voluntary refinancings during the early years of a loan's life, designed to compensate the lender for foregone spread and reinvestment risk. The standard middle-market schedule is 102 in Year 1 (NC-1), 101 in Year 2, and par thereafter; soft-call protection on cov-lite TLBs is typically a single 101 premium for the first six months following any repricing event.
Soft-Call Protection in plain English
When a lender makes a loan, they're counting on collecting interest for years. If the borrower pays it all back early and refinances somewhere cheaper, the lender loses that future income and has to scramble to re-lend the money. Soft-call protection is a fee — really an early-exit penalty — that shrinks over time, so bailing out sooner costs more. A common schedule is 102 in Year 1 (pay back $100 of debt, owe $102), 101 in Year 2, then "par" (no penalty) after that; on lighter, easily-refinanced loans it's often just a single 101 fee for the first six months after a rate change. It's like a phone contract with an early-termination fee that fades the longer you stay.
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