Exit Fee - SPPI test

[hubertd]

Hi Everyone,

I have this weird fee in the loan facility agreement. It's not a 'basic loan feature' and formally it would fail SPPI I think. On the other hand, measuring the loan which is SPPI compliant in all other aspects at fair value wouldn't really provide the useful information in my opinion. What is your view, how would you treat such a feature?

[JRSB]

seems in substance it's just another fixed payment forming part of the effective interest as it's always due, the only question is when

[hubertd]

The problem I have with this is answering the question what am I being remunerated for if that fee is payable on maturity? Just an additional return on top of the interest. Not quite a feature of the standard loan so including it in the EIR could be questionable I think?

[Marek Muc]

I'd say it is essentially a commission, but it's settled at the end rather than upfront. This does not cause the loan to fail the SPPI test IMO.

[hubertd]

With corporate or project finance you're usually getting the arrangement fee (payable upfront) and commitment fees (for undrawn amounts) and we're getting both. This 'exit fee' is what's remaining from the original transaction structure where it was more equity-like. It evolved into senior debt but this 'orphaned' fee was left there for the overall economics to work.