mandatory prepayment provision

mandatory prepayment provision
A provision in debt instruments that requires the borrower to prepay a portion of the debt with certain proceeds if and when received before the maturity date. In leveraged loan agreements it is typical for lenders to require prepayments and reductions of the revolving facility on a change of control and with proceeds of asset dispositions, equity issuances, incurrence of insurance payments, and excess cash flow. Generally, the payment is first applied to prepay term loans and second to permanently reduce any revolving loans.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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