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.
Leveraged facilities agreement have traditionally contained a more extensive list of mandatory prepayment events than an investment grade loan agreement, including:
illegality, ie it becomes illegal for a lender to continue to fund its participation, triggering mandatory prepayment of that lender's participation
exit, ie the sponsor(s) no longer controlling the business, triggering mandatory prepayment of all the facilities (see Acquisition finance—mandatory and voluntary prepayment clausesbelow)
receipt by the group of disposal proceeds, proceeds of insurance claims and proceeds of claims under acquisition documents (proceeds), obliging the group 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, obliging the group to apply a percentage of excess cashflow towards prepayment of the facilities (see Excess cashflow below)
It is now common for these traditional mandatory prepayment events to be watered down or, in some cases dropped altogether, especially on transactions with a strong sponsor.
This Practice Note discusses each of these mandatory prepayment events (except for
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