The following Banking & Finance practice note provides comprehensive and up to date legal information covering:
Most facility agreements require the borrower(s) to prepay all or part of the facility on the occurrence of certain events, known as mandatory prepayment events. For a general discussion of common mandatory prepayment events, see Practice Note: Repayment, prepayment and cancellation.
A leveraged facilities agreement will normally contain a more extensive list of mandatory prepayment events than an investment grade loan agreement. The list will commonly comprise:
illegality, ie it becomes illegal for a lender to continue to fund its participation; this will trigger mandatory prepayment of that lender's participation
exit, ie the sponsor(s) no longer controlling the business; this will trigger mandatory prepayment of all the facilities (see Exit below)
receipt by the group of disposal proceeds, proceeds of insurance claims and proceeds of claims under acquisition documents (proceeds); the group will be obliged to apply the proceeds towards prepayment of the facilities (subject to exceptions) (see Proceeds below), and
excess cashflow in the group as evidenced by the annual financial statements; the group will be obliged to apply a percentage of excess cashflow towards prepayment of the facilities (see Excess cashflow below)
This Practice Note discusses each of these mandatory prepayment events (except for illegality which is covered in Practice Note: Repayment, prepayment and cancellation), how proceeds are commonly applied against the facilities, and mandatory prepayment and holding accounts.
For a discussion of ‘make
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