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 of loans and reductions of the revolving facility on a change of control and with proceeds of asset dispositions, equity issuances, incurrence of debt, excess cash flow, and extraordinary receipts (such as insurance proceeds). Generally, the payment is first applied to prepay term loans and second to permanently reduce any revolving loans.

For more information on mandatory prepayment provisions in loan agreements, see Practice Note, Loan Agreement: Prepayment and Commitment Reduction Provisions and Standard Clauses, Loan Agreement: Prepayment and Commitment Reduction Provisions.