Material adverse change and material adverse effect in facility agreements

The concepts of material adverse change (MAC) and material adverse effect (MAE) are used in different but related ways in a typical facility agreement.

This guidance note covers:

• • points to consider when drafting and negotiating a material adverse change event of default and a material adverse effect definition;
• • declaring an event of default on the basis of the material adverse change event of default and the consequences of accelerating the loan as a result or using the event of default as a drawstop;
• • using the material adverse effect definition to qualify representations, covenants and events of default; and
• • the material adverse change representation.

See Material adverse change and material adverse effect in facility agreements.

MAC clauses for a bilateral facility agreement

The concepts of material adverse change (MAC) or material adverse effect (MAE) are typically included in the following three key provisions of a facility agreement:

• • the definitions clause;
• • the list of representations; and
• • the list of events of default.

This guidance note sets out:

• • a sample MAE definition with drafting notes;
• • a sample MAC representation with drafting notes; and
• • a sample MAC event of default with drafting notes.

See MAC clauses for a bilateral facility agreement.