Interpretation of Material Adverse Change clause in loan agreement

Material Adverse Change clauses are common in credit agreements, but are rarely interpreted by the courts. In Grupo Hotelero Urvasco SA v Carey Value Added SL (formerly Losan Hotels World Value Added I SL) & anr [2013] EWHC 1039 (Comm) Blair J considers what can be taken into account when considering a borrower’s ‘financial condition’, how to assess the ‘materiality’ of any change in financial condition and to what extent a lender’s knowledge of pre-existing financial circumstances at the time of granting credit can be considered when assessing whether a material change has occurred.

This was a factually complex case involving the financing of a hotel and apartment development in London. The developers (a group of Spanish companies and an English-incorporated SPV) had two banking facilities: one provided by the group’s primary lender Banco Bilbao Vizcya Argentaria SA (the BBVA Credit Agreement) and a later facility that had been provided by a Spanish fund called Carey Value Added SL (Carey) when the developer was experiencing financial difficulties and sought further funding (Loan Agreement). One of the group companies had provided a guarantee. In 2008 Carey ceased to make advances under the Loan Agreement. The case is of interest for a number of reasons but this case note is limited to a consideration of the court’s interpretation of the relevant (and ‘plain vanilla’) Material Adverse Change clause…

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