Prepayment finance—key facility terms
Produced in partnership with Dentons

The following Banking & Finance practice note produced in partnership with Dentons provides comprehensive and up to date legal information covering:

  • Prepayment finance—key facility terms
  • The Prepayment Contract
  • Advances and amortisation schedule
  • Deliveries
  • Indemnities
  • Representations and warranties, covenants and events of default
  • The Offtaker Loan Agreement
  • Full and Limited Recourse Portions
  • Full Recourse Events
  • Producer default provisions
  • More...

Prepayment finance—key facility terms

Prepayment finance is an established structure used to provide finance directly to buyers of goods and commodities and indirectly to producers of goods and commodities (see Practice Note: Prepayment finance—structure, parties and risks).

It is a type of trade finance and involves an advance payment by a buyer (known as the offtaker) to a producer/exporter of goods and commodities which is financed by a separate loan made by a lender (usually a bank or syndicate of banks) to the offtaker.

There are two key documents dealing with the provision of the credit in prepayment finance transactions. These are:

  1. a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and

  2. a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed

The Prepayment Contract may be incorporated into the offtake contract (ie the contract which deals with the terms on which the goods/commodities are sold to the offtaker), or may be documented as a separate agreement, referring to and to be read in conjunction with the offtake contract.

For information on the security arrangements in prepayment finance structures, see Practice Note: Prepayment finance—taking security.

The Prepayment Contract

Advances and amortisation schedule

The Prepayment Contract will contain provisions dealing with the disbursement of the advance payment to the producer by

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