Most Favored Nation (MFN)
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
A loan-protection provision requiring that if the borrower issues new debt at a higher rate, existing lenders are entitled to the higher rate, subject to negotiated thresholds (e.g., 50 bps) and sunset periods (e.g., 12-24 months).
Most Favored Nation (MFN) in plain English
Most Favored Nation is a fairness clause for lenders: if the borrower later borrows new money at a higher interest rate, the earlier lenders get bumped up to that better rate too, so nobody who lent first gets stuck earning less than the newcomers. It's like being promised that if the store drops the price for anyone else, you automatically get the lower price — except here it protects the lender's yield, not the buyer's price. The catch is it usually only kicks in past a threshold (say the new rate is more than 50 basis points, or 0.50%, higher) and it expires after a set window (often 12-24 months), so the protection isn't unlimited.
Also called: MFN
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