Loan with mandatory variable repayment

[Green.A]

Hey
We have a 3 year loan for say EUR 500,000. It’s repayable with bullet payment at end of the loan and has market interest rate. However if monthly cash generation is more than 25% above agreed cash generation targets then half of the excess above that must be repaid immediately to reduce loan capital. Same every month.
Question :
is the variable payment ignored for purpose of loan accounting, eg you ignore potential variable payments and so just use amortised cost based on final repayment, then have P&L adjustment when any variable payments are needed? Same issue re effective interest rate - just ignore potential variable payment at the start, use the same effective interest throughout and use P&L adjustments to correct amortised cost liability after each variable payment. Does that sound right?
Thanks!

[JakobLavrod]

As long as their are no fees or similar, just a simple nominal interest rate, the timing of the payments will not influence the EIR. Hence it is possible to compute the EIR without trying to forecast the repayment. For the impairment however, the place where it will get messy is when it comes to EAD, as one would need to have a forecast of the exposure over time. It would be interesting hear others view if there could be an issue here with the SPPI, but if not, I would use the forecasted values for cash generation to determine the exposure up to 3m before the default point (you need to simulate this for each possible time of default), and then weight it together using the monthly probability of default. Not a perfect solution, as if a company is about to default, the probably will not "overpay", but the reverse of assuming no "overpayment" from day 1 also risk being overtly conservative. Would be interesting to hear others views here however