Shadow Falls on ‘Make-Whole’ Bond Payments After Ultra Ruling

A court ruling that voided make-whole bond payments for Ultra Petroleum Corp. has upended assumptions about how much holders are entitled to get in a bankruptcy, and could make borrowing more expensive for some companies.

Make-whole payments are one of the most common provisions in bond agreements, present in about $7 trillion of U.S. bond outstanding issues, according to data compiled by Bloomberg. The clauses promise to pay creditors full face value plus a small premium -- typically 1 percent -- when their debt is canceled early for any reason to compensate for the loss of income.

Ultra’s documents stated ...