Our debt has prepayment clauses in it (call options). How do these prepayment clauses impact the cash flow test of significance in a debt modification?
Prepayment clause
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If either the old debt or new debt has a prepayment feature, you would perform a separate cash flow analyses for each assuming exercise and nonexercise of the prepayment option. The cash flow assumption that generates the smaller change in cash flows is used to determine if the 10% significance threshold is met.