Material adverse change — what does it mean?

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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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