With the outbreak of coronavirus disease 2019 (COVID-19), declared to be a pandemic by the World Health Organization, the Material Adverse Change (MAC) clause is receiving a lot of attention. Material adverse change (MAC) clauses and COVID-19. Unless the adverse change in its financial condition significantly affects a borrower's ability to perform its obligations, in particular its ability to repay the loan, it is not a material change. Material adverse change, or MAC, clauses are increasingly prevalent in M&A deals, finds a recent study conducted by Nixon Peabody.Out of the 200 deals the law firm reviewed, 196, or 98 percent, contained a MAC clause in the business, operations and financial conditions of … Can COVID-19 qualify as a material adverse change or material adverse effect? A "material adverse change" clause, or MAC clause in short, is a clause outlined in a business agreement that allows a counterparty to exit the agreement if there is a major degradation affecting the fundamentals of the deal between when it is signed and closed. Many corporate and finance transactions may be disrupted due to the unpredictable and sudden economic effects of COVID-19. A material adverse change — or “MAC”— clause is a representation and warranty or a closing condition to a transaction that protects a buyer against adverse changes in the condition of the target. From a debt finance perspective, the closest corollary we have to a force-majeure provision is the "material adverse change" clause. Material Adverse Change clauses What are MAC clauses? A material adverse change (MAC) is a contingency provision specifically inserted in venture finance contracts, merger and acquisition agreements, and lending agreements that gives the acquiring or funding parties, buyers or sellers, the right to back out from implementing the agreement, or seek a change of conditions when there is a substantial adverse change in the company or its … Alarmed by the escalating coronavirus pandemic, corporates and financial institutions such as banks and private equity firms are quietly seeking the advice of their legal counsel on whether they can invoke “act of God” provisions. So, to what extent might a "mac" clause be capable of being relied upon by a lender to exercise its typical remedies under a loan agreement as a result of a material adverse change brought about by the pandemic? Suitably modified, the same test applies where the obligation is one of guarantee. If a force majeure claim cannot be sustained, many contracts also contain a clause allowing termination or adjustment of obligations in the event of a “material adverse change” (MAC) or a “material adverse effect” (MAE) on the value of performance. Sample Material Adverse Change Clauses: More favorable to lender: "there not having occurred or become known to us [i.e. An adverse change must be material. In the context of private M&A transactions, material adverse change (MAC) clauses are provisions which aim to entitle a purchaser to walk away from a transaction between signing and closing if events arise …
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