Hi, Can anyone explain what Material adverse Change clause means? Thanks
It’s a clause that many lenders (possibly other do it, but I know it from lending) will include in loan/credit agreements that effectively will allow them to nullify the agreement. Also called a MAC clause Touchy stuff (because its ambiguous, and invoking it without cause could get you sued under lender liability laws) , rarely invoked. Usually loan agreeements have covenents which will be tripped if something bad happens so the MAC clause is redundant. An example could be if a company loses a customer which accounts for a VERY large portion of its revenues, that either leads to going concern issues, or on a pro forma basis you know it will trip covenants nextreporting period, a lender might invoke the MAC cluase and declare all outstandign amounts due. Hope this helps
Thanks. Very helpful
Looking back at my response I realize I explained how it works but didn’t give absic definition of what it was. Just to add to my response, a MAC is a fundamental change in the nature of a firms activities, the environemtn in which it operates (legal, political, etc.) which will have a significant effect on its ability to do business going forward. I suspect Cerberus (?) probably got out of its agreeemnt to buy Option One (the subprime lender) from Block financial due to a MAC clause, the purchase of Sallie Mae which has pretty much fallen apart due to a change in the laws which took away some of the advantages that the student loan maker had over other banks is probably being attributed to a mac clause, etc.