Mandatory prepayments clause: Copy, customize, and use instantly
Introduction
A mandatory prepayments clause outlines circumstances under which a borrower is required to make early repayments of a loan or debt, typically triggered by specific events such as asset sales, insurance claims, or excess cash flow. This clause protects lenders by ensuring that unexpected inflows are used to reduce outstanding debt, mitigating repayment risk.
Below are templates for mandatory prepayments clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Prepayments from asset sale proceeds
This variation requires the borrower to prepay the loan with proceeds from the sale of specified assets.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds received from the sale of any assets exceeding [specified value], unless such proceeds are reinvested in similar assets within [time period].
Prepayments from insurance claim recoveries
This variation mandates prepayment using funds recovered from insurance claims.
The borrower shall prepay an amount equal to [percentage]% of any insurance claim recoveries exceeding [specified amount], net of costs incurred in obtaining such recoveries, within [time period].
Prepayments from excess cash flow
This variation applies when the borrower generates excess cash flow beyond operational needs.
The borrower shall prepay an amount equal to [percentage]% of the excess cash flow for each fiscal year, as determined in accordance with the financial covenant calculations under this Agreement, within [time period] of the fiscal year-end.
Prepayments from equity issuance proceeds
This variation requires prepayment if the borrower raises funds through equity issuance.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from any equity issuance exceeding [specified amount], within [time period] after the receipt of such proceeds.
Prepayments from debt issuance proceeds
This variation mandates prepayment if the borrower issues additional debt.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from any new debt issuance, excluding debt issued for refinancing purposes, within [time period] after receipt.
Prepayments from extraordinary receipts
This variation requires prepayment from extraordinary, non-recurring receipts.
The borrower shall prepay an amount equal to [percentage]% of any extraordinary receipts exceeding [specified amount], including one-time settlements, awards, or rebates, within [time period] of receipt.
Prepayments from subsidiary dividends
This variation applies to prepayments funded by dividends received from subsidiaries.
The borrower shall prepay an amount equal to [percentage]% of any dividends or distributions received from its subsidiaries, exceeding [specified amount], within [time period].
Prepayments from capital expenditure savings
This variation mandates prepayments from unutilized capital expenditure budgets.
The borrower shall prepay an amount equal to [percentage]% of any unutilized capital expenditure budget exceeding [specified threshold], within [time period] following the end of the fiscal year.
Prepayments from a change of control event
This variation requires prepayment if a change of control occurs in the borrower’s business.
Upon the occurrence of a change of control event, the borrower shall prepay the outstanding loan amount in full, or as otherwise agreed by the lender, within [time period] of the event.
Prepayments from tax refunds
This variation applies when the borrower receives tax refunds exceeding a specified amount.
The borrower shall prepay an amount equal to [percentage]% of any tax refunds exceeding [specified amount], net of costs incurred in obtaining such refunds, within [time period].
Prepayments from surplus working capital
This variation mandates prepayment from surplus working capital determined at year-end.
The borrower shall prepay an amount equal to [percentage]% of any surplus working capital exceeding [specified threshold], as determined at the end of each fiscal year, within [time period].
Prepayments from litigation settlements
This variation requires prepayment if the borrower receives funds from litigation settlements.
The borrower shall prepay an amount equal to [percentage]% of any litigation settlements or awards exceeding [specified amount], net of costs incurred, within [time period].
Prepayments from proceeds of property damage
This variation applies when proceeds are received due to property damage.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from any property damage insurance claim exceeding [specified amount], within [time period].
Prepayments from sale of subsidiary
This variation mandates prepayment if a subsidiary or its significant assets are sold.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from the sale of any subsidiary or its significant assets exceeding [specified value], within [time period].
Prepayments from refinancing proceeds
This variation applies when funds from refinancing are used for prepayments.
The borrower shall prepay an amount equal to [percentage]% of the proceeds received from any refinancing of existing debt, excluding amounts used for transaction costs, within [time period].
Prepayments from operating lease buyouts
This variation mandates prepayments when operating lease buyouts generate funds.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds received from the termination or buyout of any operating lease exceeding [specified threshold], within [time period].
Prepayments from unused revolving credit facilities
This variation applies to funds drawn from but not used in revolving credit facilities.
The borrower shall prepay an amount equal to [percentage]% of any unused funds drawn under the revolving credit facility, within [time period].
Prepayments from proceeds of intellectual property sales
This variation mandates prepayment if proceeds are generated from intellectual property sales.
The borrower shall prepay an amount equal to [percentage]% of the proceeds received from the sale or licensing of intellectual property exceeding [specified amount], within [time period].
Prepayments from windfall gains
This variation applies when the borrower experiences unexpected windfall gains.
The borrower shall prepay an amount equal to [percentage]% of any windfall gains exceeding [specified amount], within [time period] of such gains being realized.
Prepayments from strategic partnerships
This variation applies when funds are received from strategic partnership agreements.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from any strategic partnership agreement involving payments exceeding [specified amount], within [time period] of receipt.
Prepayments from royalty payments
This variation mandates prepayment if the borrower receives significant royalty payments.
The borrower shall prepay an amount equal to [percentage]% of any royalty payments exceeding [specified threshold], within [time period] of receipt.
Prepayments from surplus inventory sales
This variation applies when proceeds are generated from the sale of surplus inventory.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the sale of surplus inventory exceeding [specified amount], within [time period].
Prepayments from capital grants
This variation mandates prepayment if the borrower receives capital grants or subsidies.
The borrower shall prepay an amount equal to [percentage]% of any capital grants or subsidies exceeding [specified threshold], net of related expenses, within [time period].
Prepayments from asset write-backs
This variation applies when funds are released due to asset write-backs.
The borrower shall prepay an amount equal to [percentage]% of any asset write-backs exceeding [specified amount], within [time period].
Prepayments from portfolio divestitures
This variation mandates prepayment from the proceeds of portfolio divestitures.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from portfolio divestitures exceeding [specified threshold], within [time period].
Prepayments from deferred revenue realization
This variation applies when deferred revenue is recognized and converted into cash.
The borrower shall prepay an amount equal to [percentage]% of any realized deferred revenue exceeding [specified amount], within [time period].
Prepayments from foreign exchange gains
This variation mandates prepayment when foreign exchange gains exceed a set threshold.
The borrower shall prepay an amount equal to [percentage]% of any foreign exchange gains exceeding [specified threshold], within [time period].
Prepayments from wind-down operations
This variation applies when funds are generated from the wind-down of operations.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from any wind-down of operations exceeding [specified amount], within [time period].
Prepayments from excess dividend distributions
This variation mandates prepayment from excess dividends received.
The borrower shall prepay an amount equal to [percentage]% of any excess dividend distributions exceeding [specified threshold], within [time period].
Prepayments from investment liquidations
This variation applies when proceeds are received from the liquidation of investments.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the liquidation of investments exceeding [specified amount], within [time period].
Prepayments from cost savings in refinancing
This variation mandates prepayment from cost savings realized in refinancing.
The borrower shall prepay an amount equal to [percentage]% of any cost savings realized from refinancing arrangements exceeding [specified threshold], within [time period].
Prepayments from unused contingency funds
This variation applies when contingency funds remain unused after the project completion.
The borrower shall prepay an amount equal to [percentage]% of any unused contingency funds exceeding [specified amount], within [time period].
Prepayments from auction proceeds
This variation mandates prepayment if the borrower generates funds from auctions.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from any auction sales exceeding [specified threshold], within [time period].
Prepayments from technology licensing
This variation applies when funds are received from technology licensing agreements.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from technology licensing exceeding [specified amount], within [time period].
Prepayments from intellectual property damages
This variation mandates prepayment if the borrower receives damages from intellectual property disputes.
The borrower shall prepay an amount equal to [percentage]% of any intellectual property damages received exceeding [specified threshold], within [time period].
Prepayments from loan forgiveness
This variation applies when a portion of the borrower’s debt is forgiven.
The borrower shall prepay an amount equal to [percentage]% of any forgiven debt exceeding [specified amount], within [time period].
Prepayments from end-of-life asset disposal
This variation mandates prepayment when funds are received from disposing of end-of-life assets.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the sale or disposal of end-of-life assets exceeding [specified threshold], within [time period].
Prepayments from surplus operational cash
This variation applies when operational cash exceeds the borrower’s working capital needs.
The borrower shall prepay an amount equal to [percentage]% of any operational cash surplus exceeding [specified amount], within [time period].
Prepayments from merger termination fees
This variation applies when funds are received due to the termination of a merger or acquisition agreement.
The borrower shall prepay an amount equal to [percentage]% of any merger termination fees received exceeding [specified threshold], within [time period].
Prepayments from trade credit adjustments
This variation mandates prepayment when the borrower receives refunds or credits from trade agreements.
The borrower shall prepay an amount equal to [percentage]% of any trade credit adjustments or refunds exceeding [specified amount], within [time period].
Prepayments from government subsidies
This variation applies when the borrower receives government subsidies or incentives.
The borrower shall prepay an amount equal to [percentage]% of any government subsidies or incentives received exceeding [specified threshold], within [time period].
Prepayments from unscheduled dividends
This variation mandates prepayment if the borrower receives unscheduled dividends.
The borrower shall prepay an amount equal to [percentage]% of any unscheduled dividends exceeding [specified amount], within [time period].
Prepayments from operational efficiency savings
This variation applies when savings are realized through operational efficiencies.
The borrower shall prepay an amount equal to [percentage]% of any operational efficiency savings exceeding [specified threshold], within [time period].
Prepayments from sale of obsolete equipment
This variation mandates prepayment when proceeds are generated from the sale of obsolete equipment.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the sale of obsolete equipment exceeding [specified amount], within [time period].
Prepayments from over-recoveries
This variation applies when funds are recovered in excess of anticipated amounts.
The borrower shall prepay an amount equal to [percentage]% of any over-recoveries exceeding [specified threshold], within [time period].
Prepayments from deferred tax assets
This variation mandates prepayment when deferred tax assets are realized.
The borrower shall prepay an amount equal to [percentage]% of any deferred tax assets realized exceeding [specified amount], within [time period].
Prepayments from retained earnings
This variation applies when prepayments are made using retained earnings beyond a specified threshold.
The borrower shall prepay an amount equal to [percentage]% of retained earnings exceeding [specified threshold], within [time period].
Prepayments from employee benefit surplus
This variation mandates prepayment when there is a surplus in employee benefit funds.
The borrower shall prepay an amount equal to [percentage]% of any surplus in employee benefit funds exceeding [specified amount], within [time period].
Prepayments from environmental credits
This variation applies when proceeds are generated from selling environmental credits.
The borrower shall prepay an amount equal to [percentage]% of any environmental credits sold, where proceeds exceed [specified threshold], within [time period].
Prepayments from subscription service fees
This variation mandates prepayment when the borrower earns significant subscription service fees.
The borrower shall prepay an amount equal to [percentage]% of subscription service fees exceeding [specified amount], within [time period].
Prepayments from equity buybacks
This variation applies when funds are generated from equity buybacks.
The borrower shall prepay an amount equal to [percentage]% of any proceeds from equity buybacks exceeding [specified threshold], within [time period].
Prepayments from crowdfunding campaigns
This variation mandates prepayment when funds are raised through crowdfunding.
The borrower shall prepay an amount equal to [percentage]% of any crowdfunding proceeds exceeding [specified amount], within [time period].
Prepayments from strategic asset swaps
This variation applies when prepayments are triggered by asset swaps.
The borrower shall prepay an amount equal to [percentage]% of the value of strategic asset swaps exceeding [specified threshold], within [time period].
Prepayments from forfeited deposits
This variation mandates prepayment when deposits are forfeited by third parties.
The borrower shall prepay an amount equal to [percentage]% of forfeited deposits exceeding [specified amount], within [time period].
Prepayments from early contract terminations
This variation applies when proceeds are received from early contract terminations.
The borrower shall prepay an amount equal to [percentage]% of any proceeds received from early contract terminations exceeding [specified threshold], within [time period].
Prepayments from research grants
This variation mandates prepayment when funds are received from research grants.
The borrower shall prepay an amount equal to [percentage]% of any research grants exceeding [specified amount], net of related costs, within [time period].
Prepayments from dividend recapitalizations
This variation applies when funds from dividend recapitalizations are used for prepayment.
The borrower shall prepay an amount equal to [percentage]% of proceeds from dividend recapitalizations exceeding [specified threshold], within [time period].
Prepayments from non-core business sales
This variation mandates prepayment when non-core business units are sold.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from the sale of non-core business units exceeding [specified amount], within [time period].
Prepayments from accumulated surpluses
This variation applies when accumulated surpluses exceed operational requirements.
The borrower shall prepay an amount equal to [percentage]% of accumulated surpluses exceeding [specified threshold], within [time period].
Prepayments from exchange-traded asset sales
This variation mandates prepayment when exchange-traded assets are sold.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the sale of exchange-traded assets exceeding [specified amount], within [time period].
Prepayments from extraordinary dividend payouts
This variation applies when extraordinary dividend payouts trigger prepayments.
The borrower shall prepay an amount equal to [percentage]% of any extraordinary dividend payouts exceeding [specified threshold], within [time period].
Prepayments from surplus project funding
This variation mandates prepayment when surplus project funding remains unused.
The borrower shall prepay an amount equal to [percentage]% of surplus project funding exceeding [specified amount], within [time period].
Prepayments from liquidation of joint ventures
This variation applies when joint ventures are liquidated, generating proceeds.
The borrower shall prepay an amount equal to [percentage]% of the net proceeds from the liquidation of joint ventures exceeding [specified threshold], within [time period].
Prepayments from unexpected inflows
This variation mandates prepayment when the borrower receives unexpected inflows.
The borrower shall prepay an amount equal to [percentage]% of unexpected inflows exceeding [specified amount], within [time period].
Prepayments from intellectual property infringement settlements
This variation applies when the borrower receives settlement payments for intellectual property infringement claims.
The borrower shall prepay an amount equal to [percentage]% of any settlement payments received from intellectual property infringement claims exceeding [specified threshold], within [time period].
Prepayments from surplus insurance reserves
This variation mandates prepayment when the borrower has surplus reserves from insurance claims.
The borrower shall prepay an amount equal to [percentage]% of any surplus reserves from insurance claims exceeding [specified amount], within [time period].
Prepayments from refinancing savings
This variation applies when prepayments are funded by savings realized from refinancing.
The borrower shall prepay an amount equal to [percentage]% of savings achieved through refinancing agreements exceeding [specified threshold], within [time period].
Prepayments from export subsidies
This variation mandates prepayment when the borrower receives export-related subsidies.
The borrower shall prepay an amount equal to [percentage]% of any export subsidies exceeding [specified amount], within [time period].
Prepayments from asset revaluations
This variation applies when proceeds are received from asset revaluations.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from asset revaluations exceeding [specified threshold], within [time period].
Prepayments from partnership dissolutions
This variation mandates prepayment when proceeds are generated from partnership dissolutions.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from the dissolution of any partnership exceeding [specified amount], within [time period].
Prepayments from green bond issuance
This variation applies when funds are raised through green bond issuance.
The borrower shall prepay an amount equal to [percentage]% of net proceeds from green bond issuance exceeding [specified threshold], within [time period].
Prepayments from voluntary windfall gains
This variation mandates prepayment when voluntary windfall gains occur.
The borrower shall prepay an amount equal to [percentage]% of any voluntary windfall gains exceeding [specified amount], within [time period].
Prepayments from government-backed loans
This variation applies when government-backed loans generate excess funding.
The borrower shall prepay an amount equal to [percentage]% of proceeds received from government-backed loans exceeding [specified threshold], within [time period].
Prepayments from extraordinary investment returns
This variation mandates prepayment from unexpected returns on investments.
The borrower shall prepay an amount equal to [percentage]% of extraordinary investment returns exceeding [specified amount], within [time period].
Prepayments from charitable contributions overpayments
This variation applies when overpayments are refunded from charitable contributions.
The borrower shall prepay an amount equal to [percentage]% of any refunded overpayments from charitable contributions exceeding [specified threshold], within [time period].
Prepayments from supplier rebates
This variation mandates prepayment when rebates are received from suppliers.
The borrower shall prepay an amount equal to [percentage]% of any supplier rebates exceeding [specified amount], within [time period].
Prepayments from rights offering proceeds
This variation applies when prepayments are funded by proceeds from rights offerings.
The borrower shall prepay an amount equal to [percentage]% of net proceeds from rights offerings exceeding [specified threshold], within [time period].
Prepayments from foreign direct investment (FDI)
This variation mandates prepayment when the borrower receives FDI proceeds.
The borrower shall prepay an amount equal to [percentage]% of foreign direct investment proceeds exceeding [specified amount], within [time period].
Prepayments from severance package reductions
This variation applies when surplus funds are realized from reductions in severance packages.
The borrower shall prepay an amount equal to [percentage]% of any surplus realized from severance package reductions exceeding [specified threshold], within [time period].
Prepayments from public offering over-allotments
This variation mandates prepayment when proceeds are received from over-allotments in public offerings.
The borrower shall prepay an amount equal to [percentage]% of proceeds from public offering over-allotments exceeding [specified amount], within [time period].
Prepayments from litigation cost recoveries
This variation applies when cost recoveries are made from litigation proceedings.
The borrower shall prepay an amount equal to [percentage]% of litigation cost recoveries exceeding [specified threshold], within [time period].
Prepayments from stock option exercises
This variation mandates prepayment when stock options are exercised, generating proceeds.
The borrower shall prepay an amount equal to [percentage]% of net proceeds from stock option exercises exceeding [specified amount], within [time period].
Prepayments from asset liquidation auctions
This variation applies when funds are generated from asset liquidation auctions.
The borrower shall prepay an amount equal to [percentage]% of proceeds from asset liquidation auctions exceeding [specified threshold], within [time period].
Prepayments from bonus clawbacks
This variation mandates prepayment when bonuses are clawed back and returned.
The borrower shall prepay an amount equal to [percentage]% of any bonus clawbacks exceeding [specified amount], within [time period].
Prepayments from technology transfer agreements
This variation applies when prepayments are funded by proceeds from technology transfer agreements.
The borrower shall prepay an amount equal to [percentage]% of the proceeds from technology transfer agreements exceeding [specified threshold], within [time period].
Prepayments from distressed asset purchases
This variation mandates prepayment when funds are generated from purchasing distressed assets at discounted rates.
The borrower shall prepay an amount equal to [percentage]% of proceeds generated from distressed asset purchases exceeding [specified amount], within [time period].
Prepayments from failed M&A deposits
This variation applies when deposits from failed mergers or acquisitions are refunded.
The borrower shall prepay an amount equal to [percentage]% of refunded deposits from failed M&A transactions exceeding [specified threshold], within [time period].
Prepayments from monetization of unused patents
This variation mandates prepayment when unused patents are monetized.
The borrower shall prepay an amount equal to [percentage]% of proceeds from monetizing unused patents exceeding [specified amount], within [time period].
Prepayments from pension fund surpluses
This variation applies when prepayments are funded by pension fund surpluses.
The borrower shall prepay an amount equal to [percentage]% of pension fund surpluses exceeding [specified threshold], within [time period].
Prepayments from natural resource extractions
This variation mandates prepayment when proceeds are generated from natural resource extractions.
The borrower shall prepay an amount equal to [percentage]% of net proceeds from natural resource extractions exceeding [specified amount], within [time period].
Prepayments from trade receivables discounts
This variation applies when prepayments are funded by discounted trade receivables.
The borrower shall prepay an amount equal to [percentage]% of the value of discounted trade receivables exceeding [specified threshold], within [time period].
Prepayments from joint venture dissolutions
This variation mandates prepayment when joint ventures are dissolved, generating funds.
The borrower shall prepay an amount equal to [percentage]% of net proceeds from joint venture dissolutions exceeding [specified amount], within [time period].
Prepayments from restructuring proceeds
This variation applies when funds from restructuring are used for prepayment.
The borrower shall prepay an amount equal to [percentage]% of any proceeds realized from restructuring activities exceeding [specified threshold], within [time period].
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.