Material adverse change (MAC) condition meaning

The concepts of material adverse change (MAC) and material adverse effect (MAE) are deployed in distinct yet connected ways in a standard facility agreement. Material adverse effect Facility agreements typically include a defined term for material adverse effect. Its primary function is to qualify specified representations, undertakings and events of default. Material adverse change A material adverse change in the borrower’s circumstances is often treated as a separate event of default. This provision is routinely the subject of heavy negotiation, with variations in scope. A common formulation links the MAC event of default back to the MAE definition. The borrower is also required to represent—sometimes on a repeating basis—that no material adverse change has occurred to its business or financial condition since the date of the most recent financial statements delivered to the lender. The drafting of the material adverse effect definition determines both the reach of the qualifications applied to the relevant representations, undertakings and events of default, and what will constitute the MAC...

This Practice Note summarises notable cases and related materials concerning material adverse change clauses (MAC) in a financing context. The cases are arranged by theme and cover: interpreting a MAC clause acceleration based on a MAC clause Interpreting a MAC clause Names of parties: BM Brazil I Fundo De Investimento EM Participacoes Multistrategia v Sibanye BM Brazil (Pty) Limited [2024] EWHC 2566 (Comm) Judgment date: 10 October 2024 Case summary: Following drilling that triggered a blast, a mine slope in Brazil shifted by up to two metres, with the ground moving as a single block. The central issue was whether this amounted to a ‘material adverse effect’ under the definition in the share purchase agreement for the company owning the mine, allowing the buyer to withdraw. Butcher J concluded it was not a ‘material adverse event’ because, in the context of the acquisition, the change was not material. To reach that conclusion, he relied on expert valuation evidence...