Most-Favored-Nation (MFN) Protection
Private Credit glossary · Documentation, Covenants & Terms
Definition
Provision that automatically raises the existing loan's spread if a subsequent incremental facility (accordion) is priced at a wider spread — typically to within 50 bps of the incremental spread. Protects existing lenders from being disadvantaged when the borrower issues new debt under the same credit agreement at less attractive terms. MFN clauses commonly sunset after 12–18 months and may carve out small (25–50 bps) cushions.
Most-Favored-Nation (MFN) Protection in plain English
When a company borrows money, it often keeps the option to borrow more later under the same contract. Most-Favored-Nation (MFN) protection is a promise to the original lenders: if the company later borrows that extra money at a higher interest rate, the original lenders automatically get bumped up to (nearly) that better rate too. It's like buying a jacket, then getting refunded the difference if the store drops the price next week — you're guaranteed you won't be stuck paying less than the newer customers earn. This shields early lenders from being quietly underpaid; in practice the protection often expires after 12 to 18 months and may allow a tiny gap (a few hundredths of a percent) before it kicks in.
Also called: MFN
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