Unnumbered Prepayment Costs

Compensation for Losses section carries no number

$550M Revolver & Term Loan · Healthcare Property Owner

Confirming the Repayment Wire

When a borrower makes a prepayment, the credit risk goes away — and so does the income. The borrower must compensate the lenders, and all parties need to check the calculation.

So how does loan operations confirm the wire is right if the prepayment clause references a section that cannot be found?

Prepayment Clause Relies on Unmarked Section 3.05

Section 2.04 governs prepayments. For a Term SOFR Rate Loan it does not state the amount owed on the way out — it points at Section 3.05.

Prepayment amounts are set by Section 3.05

2.04 Prepayments.
(a) Borrower may, upon notice to Administrative Agent, at any time or from time to time voluntarily prepay Revolving Credit Loans and Term Loans in whole or in part… Any prepayment of a Loan shall be accompanied by all accrued interest on the amount prepaid, together with, in the case of any Term SOFR Rate Loans, any additional amounts required pursuant to Section 3.05…

Sections 3.04 to 3.06 in the body — 3.05 has no number

3.04Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement…
Compensation for Losses. Upon demand of any Lender (with a copy to Administrative Agent) from time to time, Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense actually incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan…
The amounts payable by Borrower under this Section 3.05, shall never be less than zero (0) or greater than is permitted by applicable Law…
3.06Mitigation Obligations; Replacement of Lenders.
(a)Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04…

This error passed undetected through legal review across 5+ large banks.

Readable for Humans, Less So for Machines

A search for 3.05 returns nothing, which costs time. A person recovers: they scroll, see Compensation for Losses sitting where 3.05 should be, and move on.

An AI agent — that already has variable outputs — may not come to this same conclusion. Ask how to calculate prepayment costs and the citation goes nowhere. There is no numbered heading to split on, so the section is chunked into whatever came before it, and the answer comes back missing the compensation the borrower actually owes.

Ensure Your Docs Are Easily Searchable — By Humans & Agents

Traverse validated the structure of this document and surfaced this error. In this document alone, there were three other instances of the same error. Twenty places in the agreement cite those four numbers.

Traverse has run across more than $1T of bank loans and found more than $50B in error-exposed loans. Make sure your loan operations team can easily find the information they need — reach out to us for an audit of your loan portfolio.