A Brief Overview Of Material Adverse Change Clauses In Credit Documents

Material Adverse Change ("MAC") clauses, sometimes referred to as Material Adverse Effect ("MAE") clauses, are found in many financing commitments and can often be heavily negotiated. In spite of this, MAC clauses are often the most ambiguously drafted clauses in a financing agreement and are thus often subject to multiple interpretations. However, this ambiguity is essential to the purpose of the MAC clause — which is, in the broadest sense, to protect the lender against gaps in due diligence, unforeseen changes to the borrower's financial situation, unexpected and drastic market fluctuations, and anything else that could be considered a "material" change to the borrower's ability to repay the loan. While borrowers may view MAC clauses as a sign of the lender's unwillingness to fully commit to the loan, the lender should view MAC clauses as a necessary added protection against unforeseen and indeed, unforeseeable, material changes.