Why might investors disapprove of "Prepayment" on loans?

Investors may disapprove of prepayment on loans primarily because it reduces the total interest payments they receive. When borrowers pay off their loans early, it means that the investors no longer receive the scheduled interest payments, which diminishes their total expected returns from the loan. This is particularly concerning for investors who rely on the steady cash flows generated by interest payments to meet their financial obligations or to reinvest in other opportunities.

In a leveraged finance context, where the structure and timing of cash flows are critical to return calculations, prepayments can disrupt the expected income from the investment. Investors typically assess the yield on their investments based on the anticipated cash flow over the loan's life. Therefore, any early repayment can lead to a lower realized yield, especially if prevailing market rates have fallen, as investors may not be able to reinvest that capital at an equivalent return.

The other aspects, such as guarantees of principal repayment or potential reissuance of loans, do not capture the key concern of lost interest income, which is central to an investor's disapproval of prepayment. While early repayment guarantees principal return, it also eliminates the associated interest income that investors were counting on, capturing the essence of why the disapproval exists.