Most favoured nation provisions and their use in private equity funds
Produced in partnership with William Jones of RPC

The following Corporate practice note produced in partnership with William Jones of RPC provides comprehensive and up to date legal information covering:

  • Most favoured nation provisions and their use in private equity funds
  • Introduction
  • Side letters and fundraising
  • Most favoured nation clauses
  • MFN carve-outs
  • MFN carve-outs and their impact on subscription backed credit facilities
  • Where to draft the MFN—LPA or side letter?
  • Transparency
  • Practical implications
  • Project management
  • More...

Most favoured nation provisions and their use in private equity funds

IP COMPLETION DAY: The Brexit transition period ended at 11pm on 31 December 2020. At this time (referred to in UK law as ‘IP completion day’), transitional arrangements ended and significant changes began to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Corporate lawyers?

Introduction

A most favoured nation (MFN) clause entitles an investor to have visibility of side letter entitlements of other investors in the private equity fund and, in certain circumstances, allows such investor to elect to benefit from those entitlements.

MFN clauses play a key role in the commercial negotiations of an investment in a modern private equity fund. The MFN clause and its interaction with investor side letters and the fund documentation can result in the disclosure of investors' side letter entitlements to other investors and even the right to take the benefit of preferential terms negotiated by other investors. However, MFN clauses can also lead to a range of issues surrounding lack of transparency for investors and be potentially detrimental to the fund's ability to obtain subscription backed borrowing.

Further, MFN clauses can lead to increased bureaucracy, increased administration and legal costs for the sponsor, ie typically the fund’s general

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