How To Avoid Prepayments: How can a lender in international project finance who has chosen German law to govern the loan agreement avoid the borrower's pre-payment of the loan in accordance with � 489 sect. 1 and 2 BGB?

Seminar paper from the year 2016 in the subject Law - Civil / Private / Trade / Anti Trust Law / Business Law, grade: 1,0, Martin Luther University, language: English, abstract: Loans provided by banks and other lending institutions are beside equity one of the two main parts of project finance. While loans are usually secured by the assets of the equity investors, the repayment of the loan in project finance depends on the internally generated cashflows of the project company itself.

The lender has an interest in variability to make his lending profitable. Variable payment components share that they either gather up parts of the payment, or they first gain weight, once the company has grown and created significant own cash flow. As a consequence, the lender has a particular interest that the loan runs till its agreed end, so that he gets the variable payment component and can calculate on the basis of the full loan life.

Whether and under what conditions a borrower can prepay a loan-and by that diminish the return and calculability of the lenders investment, the german civil law has specific statutory provisions about. While there are options to govern the loan agreement by foreign law, which may contain fewer statutory restrictions, this paper is about the case the agreement is govern by german law.

First the author is going to examine the legal situation and its problem for the lender, secondly he is going to discuss ways to scrutinize § 489 BGB by legalmethodological means, whereupon he will figure out, if there are contractual instruments to handle the issue.