Practical Law Glossary Item 8-382-3637 (Approx. 2 pages)
Most Favored Nations Provision (MFN)
This term has several meanings. In the context of:
Finance. Business jargon for the concept that the first party will be entitled to at least as favorable terms as a second party in specified circumstances. For example, an incremental loan provision may have an MFN clause that says that the interest rate on the existing term loan will be increased so that it is not less than 25 basis points lower than the interest rate on the incremental loan. MFN clauses are sometimes seen between two loan agreements where the first agreement will be entitled to the same or better covenants than the second agreement, so any favorable changes to the second agreement will be deemed to be made to the first agreement as well.
Commercial transactions. A contractual provision, also known as a most-favored-customer clause, prudent buyer clause, or non-discrimination clause, in which the seller promises the buyer that it will not offer another buyer better terms before offering those terms or better terms to the first buyer. Because of antitrust concerns this practice may be used in an anti-competitive manner, courts will examine these provisions closely using a rule of reason analysis. Courts will determine the enforceability of the MFN provision by balancing the pro-competitive benefits of the provision (such as cost savings for buyers that may be passed on to downstream buyers) against the anti-competitive harms (such as discouraging price cutting and potentially encouraging monopolies).