Material adverse change — what does it mean?

By Anna Voss

Material adverse change (MAC) provisions appear in the majority of loan agreements. The recent Grupo Hotelero case included interpretation of MAC in the context of a representation that there had been no MAC in a borrower’s financial condition.

While adding some clarity, the case doesn’t make a ‘no MAC in financial condition’ representation any easier for a lender to rely upon.

MAC definitions come in many forms but generally refer to changes that have an adverse effect either on the borrower’s business generally, its financial condition, and/or the ability of the lender to call on its security. A simple MAC representation requires a borrower to represent to the lender, at set times, that there has been no MAC since a particular date. If the borrower cannot provide this representation, it will ultimately lead to an event of default…

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