Side Letters And MFN Mechanics — Designing Enforceable And Operable Frameworks

Introduction

In the private credit space, side letters remain crucial for tailoring fund terms to the regulatory, tax, operational and policy needs of investors. They are a key feature of private credit fund negotiations, with investors routinely presenting extensive lists of bespoke requirements. The proliferation of preferential terms has turned side letter management into a core governance issue for fund managers. This is particularly acute in private credit funds where the volume of underlying investments and the managers’ more limited access to portfolio companies’ information (relative to controlling equity sponsors) can amplify the operational challenges of complying with bespoke side letter commitments. In the current environment, marked by heightened investor scrutiny and evolving regulatory expectations, the primary areas of focus include enforceability, MFN (most favored nation) design and operational feasibility.